April 20. News cycle latches on the flattening curve; time to exit
–A couple of quick takeaways from yesterday’s price action. Stocks and bonds went down together. Also, implied vol firmed (albeit slightly) in fixed income as yields rose and the curve steepened. Typically, sell offs haven’t been associated with demand for premium. The highlight is the short USU 143p position (36k), which is now at the money, having settled 2’24 vs 142-30 (vol 7.0, vs initial sales sub 6.9). It also put the first sales of 12k at 1’21 just over 1 point under water. The ten year yield rose 4.8 to 291.2, while the 30y bond was up 6.2 to 310.5. German bund ended near 60 bps, having spent the early part of the month between 50 and 52. The red/gold eurodollar pack spread rose 4 bps to 13.375, having made new lows this week of 8.25. Now that every financial publication under the sun is opining on implications of a flattening curve, it’s ripe for a bounce.
–Large early sale of 0EM (short red June midcurve) 9700p at 2.0. Settled there vs 9717.5, with a decline of 50k in open interest. On the call side, buyer of 40k TUN8 106.5/106.6 c spd. Sept 2y settled 105-272, so the lower strike is at least 30 bps away. There was also massive buying of 3EK (blue May) 9712.5c for 2.5 vs 9701 down to 9699.5. Settled 2.25 ref 9699.0 with a jump in open int of 59k. Late buying of 20k TYK 120c for 3 ref 119-26; May treasury options expire today.
