Amid liquidity promises, worries persist
November 18, 2020
–November bitcoin comfortably above 18k this morning at 18185, having been around 11k in October. Soybeans at new highs this morning with Jan 1174/bushel vs 880 as recently as August. Dec copper is 3.23, having been in a continuous rally since May when it was 2.33. While bitcoin has had a stunning 63% rally recently, 30 to 40% rallies in other economically sensitive products are worth note as well, even if the time frame has been longer
–Against this backdrop of a liquidity driven tailwind, interest rates remain quiet with a bias toward a flatter curve yesterday. Tens eased 3.4 bps to 87 while twos fell just 0.4 to 17.3. On the euro$ curve, reds rose 0.75 bp to avg 99.69375, while greens (3rd yr) rose 2.375 (avg 99.60375). There is a determined seller of long dated red 9962 calls helping to cap reds. Early in the day a block sale of 10k EDM2 9962c at 9, followed by pit sales of U2 9962c at 10 ref 9966 and Z2 at 11 ref 9963.5. To give an idea of 9962 strike depression, note that EDH2 9975 straddle settled 14 vs 9969, and EDM2 9962 straddle also settled 14.0 ref 9968, with 91 days more time value. EDH2 9975^ 14.0, EDH2 9962^ 12.5, EDM2 9975^ 17.5, EDM2 9962^ 14.0. March 3m SOFR is 9992.5 and June 3m SOFR is 9992.0. These sales of 9962c starting past the libor transition date appear to target a SOFR/libor spread > 23 bps.
–In terms of liquidity, on Monday Clarida hinted at a change in bond buying, and yesterday Bostic essentially said the same thing, with Powell noting emergency lending programs likely need to be extended past year-end. Additional bond buying will be announced at the Dec 16 FOMC, I’m quite certain. While these measures help homebuilder confidence (new record highs yesterday), other parts of the economy can’t be patched without targeted support.
–There was a buyer yesterday of 50k TYF1 139.5c for 5. Settled there vs TYH1 137-29. Early in the day there were some directionally bearish trades in Jan options, but the 139.5c appears new (open int +22k). Maybe someone is spooked by Softbank’s Masa Son warning yesterday about the possibility of a Lehman-like crisis.
https://www.nytimes.com/2020/11/17/world/masayoshi-son-chief-executive-of-softbank-prepares-for-a-worst-case-scenario-as-cases-rise.html#:~:text=%E2%80%9CCash%20is%20very%20important%20in,a%20vaccine%20is%20widely%20distributed.
