Heavy weight on interest rate contracts
August 11, 2021
–CPI and ten year auction today. CPI expected +0.5 on the month, year/year 5.3 vs 5.4 last and Core 4.3 from 4.5. Senate passed the $3.5 trillion spending bill; the government’s monthly budget statement also released today.
–Yields edged higher with tens up 2.7 to 1.342%. Greens (3rd yr) were the weakest on the euro$ strip settling -3.375. Once again, red/gold pack spread eked out a new high at 57.75. The peak one-year calendar remains EDU’22/EDU’23 at 63.5 which rose 1.5 to a new high.
–While futures ended lower on the day, there was no sense of panicky put buying, in fact, it was the opposite. The day started with a seller of 30k 2EU 9900p at 6.0 ref 9906 in EDU’23 (settled at 7.0 vs 9904). There was a 25k risk reversal, selling EDH2 9975p and buying the 9987.5c flat, both options settled 2.25 vs 9983.5. In TY a couple of new notable call spread buys: +35k of each TY3Q (Aug 20 expiry) 134/135 cs for 15 (settled 13) and TYU1 134/135cs for 17, (settled 15 vs 133-175). Even though option activity was weighted toward directionally bullish plays, there is a heavy weight of selling pressure across the curve. For example, EDZ’23 printed 9923 right after the weak ADP data on Wednesday. This morning it is 31 lower at 9892 (down 1.5 from yesterday settlement).
