Early start before the snowstorm
February 2, 2022
–Stocks higher this morning after Alphabet results. March WTI is holding above 88, near new highs. ADP this morning expected 184k.
–Rates trading was quiet yesterday, with yields edging slightly higher. Tens ended at 1.796% up 1.8 on the day. The eurodollar strip was +1 to -1, but one interesting note is that the red/green pack spread settled at a new recent low of just 15.125 bps. This is the second year forward to the third year forward, average price of the four contracts is 98.19375 in reds and 98.0425 in greens, both under 2%. This spread is consistent with the idea that rate hikes will have ended by some time in the beginning of 2023. I suppose that Federal gov’t debt of $30 trillion can be thought of as a dark cloud over forward economic prospects.
–Exit sale of 80k 0EH2 9862.5/9850 put spread yesterday as shorts continue to pare back positions. The 0EH put spread settled 9.25 vs EDH3 settle of 9838. Position originally bought for 3 to 3.5. Nominal straddle prices are typically higher in greens and blues versus reds, of course, the curve usually has a slope. Currently, nominal straddle prices are essentially equal. 0EH 9837.5^ is 25.5, 2EH 9800^ is 26 and 3EH 9800^ is 25.0. 0EM 9825^ is 47.0, 2EM 9800^ is 47.5 and 3EM 9800^ is 46.5. Again, I think this points to a stagnant curve and a decelerating economy and inflation.
–ECB and BOE tomorrow with the bund finally sporting a positive yield.
