A little help?
September 22, 2020
–Powell and Mnuchin testify in front of Maxine Water’s House Financial Services Committee today. While the panel is likely to press for more direct support to small business, Bullard yesterday helpfully said that there’s enough fiscal stimulus in the pipeline to encourage a self sustaining recovery. Stocks are apparently of the opinion that more is needed in the efforts to prop up asset values; at one point the Dow was down 3% before a late day rally shaved the loss to 1.8%.
–There were several large short-end trades yesterday, all of which were accompanied by declines in open interest; possibly one player exiting positions? First, an aggressive seller of EDM1/EDM2 in size of about 30k from 1.0 to 0.5. This spread settled at a new recent low of 0.5, down 1.5 on the day. Next, a seller of about 30k EDZ0 9975c at 2.25 covered 9973.5, equivalent to 6.0 in the straddle which is the lowest it has traded. Finally a seller of 50k FFX0 at 9992.5. Fed effective has been 9 bps since late August, so in all likelihood this contract rolls down to 9991. If one had these several positions on, it would have expressed a view for more vigorous and immediate Fed easing, where both EDZ and FFX would pop higher, and the June/June spread might even widen as near contracts outperform. On the other hand, if the Fed is less inclined to do more, perhaps USD will rally, which is indeed what occurred yesterday.
–In spite of stocks testing the downside, long end yields were little changed, with tens -2.3 to 66.9 and thirties -2.6 to 1.425%. Two year auction today.
