They don’t review it in the booth

Sept 18, 2024
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–It’s 25 or 50.  Just like the election, about half the trading population is going to be very angry.  We’ll get some whiners. FFV4 settled 9508.  If only 25, it still will probably hold 9493-93.5 instead of pegging 9492.  The upside will exactly target 9517, and I wouldn’t be surprised to see 18 print.  It’s like that song about the end of the night at the pub: “Closing time, you don’t have to go home / But you can’t stay here”

At the last June FOMC dot plot, in terms of Fed Fund projections:
2024 was 5.1, up from 4.6 in March.  SFRZ4 is 9596.5 or 4.035%, 100 lower than the Fed’s last projection.
2025 was 4.1, up from 3.9 in March.  SFRZ5 is 9513 or 2.87%, about 1.25% lower than the Fed’s last projection.
2026 was 3.1 from 3.1.  But what does it matter…they were off by a million miles last time with only 6 months until year end.

SFRZ4/Z5 is -116.5 (9596.5/9713), not all that far from the implied spread of -100 on the dot plot, just off by 100 bps in each contract.  By the way, ERZ4/Z5 is -106 and SFIZ4/Z5 is -104.5.  

–There will be typical hand-wringing over the dots.  They don’t matter.  Post-election comes with heaps of uncertainty and the Fed addresses uncertainty with liquidity. 

–Had a client check Wednesday’s (today) TU atm straddle (104.375).  At end of day it was 13 mid-market ref 104-115.  DV01 on contract is about $39.80…straddle is a bit over 10 bps.  Priced about right. 

–Convexity Maven (Harley Bassman) piece out yesterday suggesting the 2-yr yield has way too much ease priced in.  Obviously clear from near SOFR contracts; there’s concern the economic and political wheels could come off.  Hasn’t paid to load up on shorts.  Probably worth selling the pop across the curve and stocks on 50, but don’t overstay the welcome. Longs remain in control, and sell-offs will likely be brief.  

https://www.convexitymaven.com/wp-content/uploads/2024/09/Convexity-Maven-Forests-and-Trees.pdf

Posted on September 18, 2024 at 5:10 am by alexmanzara · Permalink
In: Eurodollar Options

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