Wrench in the V-shape

April 14, 2020

–Tens (TYM0) have been in a relatively tight range for the past four sessions bouncing around 138-00 (yesterday settled 138-025) and today looks no different.  Yield at futures close yesterday was 74.6 bps.  Premium selling on the front end of the curve portends more normal conditions, with EDM0 9950 straddle settling 20.0 vs 9948 vs 22.0 on Thursday.  The atm TYM straddle also eased, to 1’61 from 2’06 with vol pretty much at pre-crisis level of 5.4.  The market clearly expects the libor setting to continue falling given the Fed’s heroic efforts to save everyone.  Stocks are taking a similar view.  While SPX was slightly lower, Nasdaq eked out a gain.  BBG had a headline, ‘NFLX throws a wrench in V-shaped recovery’.  I didn’t read it, but the fact that NFLX (+7%) and AMZN (+6%) are posting new highs indicates that home work and entertainment are expected to dominate the future, and that’s not exactly good news for a return to a more social world.  Contrasted against these winners are results from Softbank, whose WeWork fiasco signaled the beginning of the end.  From Almost Daily Grant’s: Softbank projects an operating loss of $12.5 billion; its in-house Vision Fund lost $16.6 billion, “no small portion of the fund’s $100 b aum.”  Funding for tech start-ups will be hard to come by. https://www.grantspub.com/almostDailyHTML.cfm
–Another aspect of yesterday’s trade worth mention is gold.  GCM0 jumped another $8.6 to close just under $1763/oz.  It’s up 300 since the middle of March.  Barrick (ABX +7%) and Newmont (NEM +4.6%) jumped to new highs.  

Posted on April 14, 2020 at 6:05 am by alexmanzara · Permalink
In: Eurodollar Options

2 Responses

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  1. Written by OR
    on April 14, 2020 at 9:43 am

    Hi – thanks for the posts, very helpful. I just struggle to see 3m LIBOR tighten further than 1%/99.00, as the Fed support for unsecured/commercial lending facility is priced at OIS+100bps to my knowledge. Am I getting this wrong?

  2. Written by alexmanzara
    on April 14, 2020 at 11:03 am

    Hello. Great point, and well worth taking into consideration. But the fact is that EDM0 has been signaling comfort with 3m libor 0.50 to 0.75%. However, as to your specific question, I am NOT prepared to say you’re getting it wrong! My view leans more toward libor tightening to funds, but I am not at all ready to dismiss your argument. Alex

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