Front runners
November 7, 2024
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–FFX4 are locked-in for a 25 bp ease today. A cut will take EFFR from current 4.83% to 4.58%. The Jan FF contract prices the Dec 18 FOMC. It currently is 9560 or 4.40%. If, after today, the Fed holds at 4.58, then FFF5 goes to 9542.0, or 18 lower. On another 25 bp cut it goes to 4.33 or 9567.0 (ignoring the Jan 29 FOMC). Obviously, the lean is for another cut after today. Note that it was after the 50 bp cut in September that longer treasuries began their slide.
There’s a Reuters headline today:
‘China’s exports soar past forecast as factories front-run Trump tariff threat’
There’s a lot of front-running going on right now in markets. The other day I joked that on the Sept-18 50 bp cut, ten year yields ultimately soared by about 65-70 bps. Same magnitude after a 25 cut today should spark a move of about 30 to 35 bps. I had marked tens at 4.36% on Friday and suggested perhaps 4.70% should be the target. Got a bit of a front-running head start yesterday with 10y +13.7 to 4.426. The curve steepened with 2s only +6.5 to 4.266%.
–Having said that, I am looking for long-end rate futures to bounce, at least temporarily. Implied vol was crushed in the past 2 days, and demand for the 30-yr auction was strong, posting a result 2.2 bps through at 4.608% on bid-to-cover 2.64. A friend said, “well that’s no surprise given the 20 bp yield back-up” (30s +15.2 yesterday to 4.60%). But that’s the point: the yield rise brings in buyers, i.e. support.
–To give an idea of the vol move, there was an exit block yesterday: TYZ4 109.5p covered 109-12, 54 delta, seller of 17k at 46.
On Tuesday. TYZ4 109.5p settled 33 with a delta of 34 against 110-13. Change in futures of 1’01 or 65/64s should have caused the put to be around 56. But it traded 46. Long puts did NOT perform. Long puts hedged were a disaster. TYZ4 109.5p settled 40 ref 109-175. Open interest fell 11.5k
–There were a lot of big trades yesterday. I am just going to mention a few option trades on SFRZ5, which settled -10 at 9616.5 and had the largest change in open interest at +78k. SFRZ5 9875c 2.5 paid for 30k, new position. These are 259 bps out-of-money. Z5 9325/9275ps 0.75 paid for 50k (new). Top strike 291 otm. Settled 0.75. Z5 9575/9550ps covered 9615.5, 8d, buyer of 40k 7.75 (new, settled 7.5).
The Fed’s September end-of-2025 FF projection was 3.4% or 9660. Exactly one month ago on Oct 7, SFRZ5 settled 9657.5, and on Oct 8 at 9660. Right on target. We now see that the Fed’s guidance, much like that of professional pollsters, has been discredited. In fact, on Sept 10, SFRZ5 settled 9720, so we’ve travelled 100 bps in two months. Maybe the otm stuff in Z5 isn’t so crazy!
–Powell’s future: From the Fed website: Powell’s new term as Chair ends on May 15, 2026.
–Yesterday I mentioned the Frenchman who bet correctly on Trump. In case missed the original story:
Polymarket’s French Whale Scores a $48 Million Trump Jackpot
2024-11-06 17:50:36.537 GMT
By Emily Nicolle and Max Harlow
(Bloomberg) — Many people involved in crypto markets had
reason to gloat on Wednesday about Donald Trump’s win, but one
closely watched French trader’s bets are poised to pay out
millions of dollars on the election’s outcome.
The pseudonymous trader — known best as Fredi9999, the
username of one of his four known accounts on the Polymarket
predictions platform — is expected to haul in a total profit of
around $48 million on the results of the election, according to
calculations made by Bloomberg.
In the platform’s most-popular market, where users bet on
which candidate will be the next president, the four accounts
will net around $22 million, Polymarket data showed on Wednesday
morning in New York. Another $26 million was the result of other
bets related to the election, such as Trump winning the popular
vote or winning Pennsylvania. Two of the trader’s accounts rank
first and second place as Polymarket’s most-profitable users of
all time.
Scrutiny of Fredi9999’s trading patterns ramped up in
recent weeks as his bets ranked among the largest wagers on
Polymarket’s presidential markets, prompting concerns of
possible market manipulation. Following an investigation,
Polymarket said the person behind the four accounts is a French
national with extensive experience in financial services, who
simply wished to bet on Trump’s chances.
Read More: Polymarket Says Trump Whale Identified as French
Trader
On Polymarket, which does not permit US users, traders use
cryptocurrency to buy what it calls “yes” or “no” shares
tracking outcomes of future events. The amount of buying and
selling of those instruments then determines the implied
probability of each outcome at any point in time. The platform
displays profits under each account’s positions, which represent
the difference between the price of the shares when they were
bought and $1.
While polls had been showing a neck-and-neck race between
Trump and his Democrat rival Kamala Harris in the days leading
up to the vote, betting markets swung heavily in favor of the
Republican. Polymarket had been a particular favorite for Trump
supporters, often displaying probabilities of his victory that
were several percentage points higher than other prediction
markets.
Read More: Betting Markets, Vindicated by Trump Win, Set to
‘Run the World’
In comments published by his accounts on Polymarket, the
trader described himself as a European investor, statistician
and “big gambler” who was willing to bet millions on Trump’s
chances. “A land of the free, a home of the brave, not a KAMALA
LA LAND. She is WEAK!!” he wrote on Oct. 6.
The trader said in other comments that he viewed most
traditional polls with caution, given how outcomes were
misjudged in previous presidential elections. Instead,
prediction markets offered the best risk versus reward. Even
then, Polymarket wasn’t his preferred way to wager, just a
portion of his bets, he said.
“Best play is Bitcoin,” the trader said on Oct. 18. “So do
you think that I care about manipulation the odds here ??”
To contact the reporters on this story:
Emily Nicolle in London at enicolle@bloomberg.net;
Max Harlow in London at mharlow4@bloomberg.net
To contact the editors responsible for this story:
stacy-marie ishmael at sishmael@bloomberg.net
Anna Irrera, Michael P. Regan
To view this story in Bloomberg click here:
https://blinks.bloomberg.com/news/stories/SMJ7XQDWRGG0
