Transitioning

February 3, 2023

–Employment data today with NFP expected 190k and Avg Earnings yoy at 4.4% (from 4.6 last).   Jobless Claims were again low yesterday at 183k, but Challenger layoffs jumped.  I’ve attached a chart and link from Chris Long, “Excluding 2020, we haven’t seen anything like this since Nov 2008 and January 2001.”  At the cusp of a hard slowdown in the labor market?

https://www.linkedin.com/posts/clong447_federalreserve-monetarypolicy-recession2023-activity-7026912367879811072-BUZy?utm_source=share&utm_medium=member_desktop

–Post-close earnings reports by AAPL etc, put a lid on frothy price action during the day.  A headline on ZH says it was the largest trading day for options of all time.  Currently ESH down 34.50 at 4157.  

–In the wake of the BOE meeting, Sonia March’23/March’24 spread plunged from -32.5 Wednesday to -61.5 yesterday!  In the US Sofr March’23/’24 is -104, down 2 on the day (9518/9622).  

–In the US, the ten year yield was little changed at 3.398%, but 2s fell 2 bps.  Worth noting, as futures ‘transition’ into SOFR from ED, is that SFRH3/EDH3 spread has collapsed to a new low for the cycle at 13 bps.  The transition adjustment is double that.  Does that mean that rates on the futures curve are being artificially set 1/8% lower than they ‘should’ be?  Probably not, but the compression in the only libor-based futures spreads that actually trade with a spread, March at 13 and June at 16.5, sort of enhance the ‘risk-on’ cocktail.

–SOFR straddles also continue to compress.  Not that there’s much trade in the long greens, but those straddles were marked down by 3.5 to 5 bps.  What DID trade was SFRZ3 9568.75^, which was sold (new) 25k, settling 66.75 ref 9570. Dec atm straddles have been sold heavily since December.  There is a LOT of open interest in both calls and puts in SFRZ3, more than 2.5 million in both. 

courtesy Chris Long
Posted on February 3, 2023 at 5:19 am by alex · Permalink
In: Eurodollar Options

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