Still risk over the weekend, but perhaps less
April 19, 2024
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–Strong Philly Fed (highest since Q2 2022) contributed to a move to higher yields. In treasuries the 5yr led, rising 7.1 bps to 4.684%. Tens +6.4 at 4.645%. On the SOFR curve reds were weakest, settling -9.0. New high in M4/M5 calendar at -66, up 8 on the day (9473, -1.0/9539 -9.0). SFRZ4 settled 9504, -6.5, at nearly 5%, indicating about 1.5 eases this year.
–Limited Israel strikes on Iran caused volatility overnight, for example, TYM4 surged to 108-22+ up a full point from settle. However, all initial moves have significantly subsided; TYM now 108-04. I don’t know how much copper it takes to keep the war machine running, but we’re seeing a cocoa-like bid there, up another 5 cents today to new highs, with HGK4 4.487.
–Decent amount of downside trades in SOFR options yesterday, the largest being a new buy of 40k SFRZ5 9475/9425/9375p fly for 4.0. Settled there vs 9565.5 in Z5. 603 days until expiry. There was also a buyer of 20k U4/Z4/H5 flies for 1.0 to 1.5. Sept/Dec settled -17 and Dec/March -18 so fly settled +1. In the old days of ED futures, U/Z/H flies would be bought in order to cover the year-end ‘turn’ embedded in Dec contracts. Not sure of the motivation for this one, though M4/U4/Z4 settled +3 (-14/-17). More emphasis on pre- to post- election trades. The U4/Z4 calendar at -17 is a new recent high (9487/9504).
–Perhaps weekend risk is a bit more muted since the Israel/Iran conflict appears slightly less inflammatory. However, large equity option expiration today.
SFRU/V 9462.5p cal 2.25 to 2.5
SFRU4/V4 9450/9400ps spd 1.0-1.25 paid 25k
SFRZ5 9475/9425/9375p fly 4 paid 40k
SFRH6 9475/9425/9375p fly 3.5 paid 5k
SFRZ5 9525/9400ps cov 9566, 22d 30 paid 5k
SFRH5 9825c 2.5 paid 20k
Later TYM4 107.5p cov 107-24, 53 paid 10k
U/Z/H fly 1.25 paid 20k
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