Snow in April in Chicago. Normal
April 17, 2020
–Stock futures jumped to new highs shortly after the close yesterday evening as Trump announced re-open plans and a drug from Gilead apparently showed promise of rapid virus relief. ESM made a high of 2885, up nearly 100 from settle. On the other hand, China released Q1 GDP down 6.8%.
–Curve continued to flatten yesterday with twos unchanged at 20.1 bps and tens -2.6 to 60.9. In dollars red pack fell 0.375 to 99.7125 while golds rose 1.75 to 99.30. Notable trade in July puts (EDU0 underlying). EDN0 9962/9950p 1×2 -0.75 paid for 50k and EDN0 9975/9962/9950/9937p condor 4.25 paid for 50k. Open interest in July puts increased 335k, expire July 10. Settles from 9975 down, 13.5, 7.5, 4.25, 2.5 vs EDU 9964.5. So the 1×2 settled -1.0 and the condor 4.25. Neither of these trades wants to see EDU0 much below 9950 at expiration, and that with current libor at 113 bps. A note by Pozsar suggested a continued drop in lib/ois which may have been impetus for these trades. On the other hand, a magic bullet drug combined with sloshing stimulus might make things look a lot more ‘normal’ by late summer.
–Vol firmed quite a bit in dollars. EDM0 9950^ settled 20.5 having been as low as 18.5 earlier in week. On Wednesday, 0EU 9975^ settled 16.0, yesterday at 18.5. 2EU 9962^ went from 23.5 to 27.5 and 3EU 9950^ from 32.5 to 35.5. The red/green eurodollar pack spread posted a new low of just 11 bps yesterday, but it seems to me that the midcurve straddle curve continues to suggest a much steeper curve in the near future.
