FOMC and Biden Address
April 28, 2021
–Rate futures slipped lower on Tuesday coming out of the seven year auction, with the FOMC today and Biden’s Congressional appearance this evening. Tens rose nearly 5 bps to 1.616%. The curve steepened with the red pack down 0.625 while golds dropped 6.75. Large seller in EDU1 at 9980 appears to have been an exit, with open interest down 13k in Sept and 12k in EDZ1. Sept settled 9980 and Dec at 9974.
–On the last FOMC meeting, TYM traded a high of 132-09 and settled 132-03. That was March 17, and since then there has been a series of strong economic and price data. At the end of March, TYM posted a low settlement for the move of 130-30. The high since then has been 132-245. The area of 132-08 to 16 should now provide solid resistance, with a likely retest of the lows. Any hint of reduced bond buying by the Fed may spark higher yields, especially when juxtaposed with Biden’s fiscal plans which will require ever more issuance.
–There was continued accumulation yesterday of 3EU 9800 put/ 9900 call risk reversal, which traded 30k covered 9954.5 with 40 delta for 1.5, paying over for the put. The put settled 8.75 with the call 3.50 vs 9845, or 5.25. More or less flat from trade level on a hedged basis. Total position approximately 100k. The were some additional long maturity put plays, for example a buyer of 4000 4EU 9737/9725p spread for 1.75. Recall that interest in blue and gold puts was kicked off with huge positions in Blue March which of course expired over a month ago but pre-dated the large sell off. Renewed activity indicates stronger sentiment for a push to higher yields.
