EDZ2/EDZ3 posts a new low at 13
May 12, 2022
–CPI higher than expected 8.3% caused a sharp break in interest rate futures, which was then erased as the session progressed, with weakness in stocks persisting. Treasury vol declined as bonds rallied, with TYN down 0.5 to 7.3, TYN 119^ settled 2’27 vs 118-245s.
–On Tuesday, 0EK 9662.5^ settled 16.5, and yesterday morning I commented on the wide breakevens with just three days until expiry, 9646 to 9679. These guys are good! …yesterday low was just 0.5 outside of b/e at 9645.5, and the contract came back to settle exactly at strike 9662.0. Yesterday, with TWO days left, this 0EK 9662.5^ settled 12.0. Will perhaps take a look at upside b/e today!
–Attached chart shows EDZ2/EDZ3 which settled at a new low of 13.0. In a rough way, that prices the amount of Fed hiking for next year, and it’s obviously being squeezed out. This was the only 1-yr spread to post a new recent low. I’ve also kept an eye on FFN3/FFF4 which prices Fed activity in the second half of next year and it had been around 0…but has trended negative and is now -10.5. If a Fed-engineered fight against inflation crushes the economy, then we’ll be looking at easing in a year…
–Late FVM block right at futures settle was a buy of 20k at 112-3125. The contract settled 112-305 and is 113-075 this morning. Open interest fell 28k. The five year, of course has seen tremendous pressure as the Fed became increasingly hawkish.
–PPI today expected 10.7 from 11.2 with Core 8.9%. Job Claims expected 192k. Thirty year auction.
