MLK holiday/ abbreviated session
January 17, 2022
–Reds (2nd year) weakest on the euro$ strip Friday closing -9.625. Two year treasury yield jumped 7 to 96.5 as the market focuses on the pace and magnitude of upcoming rate hikes. Tens rose 6.2 to 1.77%. A couple of large ED option trades show the bias: +30k EDJ 9900/9875 put spread for 1 ref EDM2 9926 and +50k EDU2 9862/9837ps for 2.75. New high for the cycle in EDH2/EDH3 which settled up 6.5 at 105. From having been circumspect about the possibility of ANY hiking in 2022 as recently as Q3 2021, the market is now set for 4 or more 25 bp moves in 2022.
–China, on the other hand, eased with a ten bp cut in the 7-day reverse repo rate and one-yr lending rate. China GDP slightly better than expected at 4% but damage from the property sector continues to weigh. As of this writing TYH2 is making a new low of 127-25, nearing ever closer to the TYH 127 put which has peak open interest of 321k. (TY futures have 3.8 million open). That put settled 22 with -0.27delta vs 128-06. Feb treasury options expire Friday and should see decent activity as players scramble to control gamma exposure. March WTI crude made a new high early this morning of 84.09, though is now slightly lower on the day. I guess the whole charade of releasing SPR supply hasn’t had its intended effect.
