March 16, 2018. They’re dying the Chicago River Green tomorrow – does that mean we buy greens?
–Going into the expiration of EDH8 the pressure continues, with new lows in EDH8 yesterday of 9778.75. However, EDM8 did not make a new low, and was 9769 bid late. After the libor setting came out at 2.1775 there was a buyer of at least 50k EDH8 9775p for 0.25. There was also buying of 20k EDJ 9762p for 1.75 and of EDK 9750p for 0.75 (both settled at those prices ref 9770.0). While lib/ois rallied out to new high, the 2 year swap spread fell a couple of bps from 32.4 to 30.1. The curve continued to flatten. Late mark in 2/10 was 54 bps, -1.5. The low set on Jan-4 was 49.7. 5/30 was 43.5 late, the low of the year was 41.9 on Jan 31.
–I got a good question yesterday: what part of the curve rallies hardest If a catalyst sparks a rally. Perhaps it depends on the catalyst. I would say the first two greens, i.e. EDM0 and EDU0. In treasuries I would reckon the 5yr, as 5/10 spread is barely above 20.
–Housing Starts and Industrial Production today with the latter expected +0.4. JOLTS as well, but there’s little concern about the labor mkt at this point.
–FOMC meeting is Wednesday. Dots are expected to go up.
–The one-year euro$ spreads are becoming completely flat. Late marks: EDH8/H9 41.0, EDM8/M9 41.5 and EDU8/U9 39.0. EDZ8/Z9 settled 33.5, so there’s still some positive roll there. Back end of the curve is is flat as it can get without inverting. Green/blue settled 3.875 and blue/gold 3.25. New lows. Also at a new low is EDZ9/EDZ1 at 8.5. Interestingly, even with curve flattening implied vol firmed significantly. Although the tightening at next week’s FOMC is fully priced, the market feels as if it’s gearing up for a big move. March Midcurves expire today.
