Hump day
January 20, 2021
–Inauguration day. Treasury auctions 20y bonds. Fed’s purchases tomorrow consist of $3.625 billion in 7 to 20 yrs.
–Although Mnuchin, with input from TBAC, ultimately dismissed the idea of issuing long dated bonds, former Treasury Sec’y Robert Rubin last week suggested locking in long-term borrowing costs with long dated issuance, and Yellen said in yesterday’s testimony she would be glad to study the idea. No discernable market impact as tens closed at 109.2 and the thirty-yr bond fell 1.3 bps to 1.84%.
–Yesterday’s flow in dollars mostly consisted of buying low delta put spreads, the largest of which was 40k 2EU 9937/9925/9912/9900 put condor for 2.5 vs various futures levels. Settled 2.25 vs EDU23 at 9948.5. Also a couple of long dated red put spreads, +20k EDH2 9975/9962ps for 1.75 and +15k EDM2 9975/9962ps for 2.5.
–Feb treasury options expire Friday. TYG 137 straddle settled 22 vs 136-30. TYH ^ settled at exactly 1’00 with 31 dte. There had not been much migration into April options, but it started to trickle in yesterday with TYJ put open interest adding 35k bringing the total to 78k. April call open interest is just 17k.
–NY Fed business leaders survey (regional) out yesterday, showing a wide disparity between worsening current conditions and expected future improvement. A couple of interesting quotes regarding prices: “Employment levels declined at a faster clip though wage increases picked up. Both input prices and selling prices increased at a faster pace than December.”
