Huge NFP print leads to huge straddle prices
February 7, 2022
–NFP of 467k when several shops were forecasting a negative number sent yields soaring higher. Tens rose 10.6 bps to 1.928%, while the 2-yr jumped 13.4 bps to 1.322%. Near eurodollar calendars made new highs, for example the front EDH2/EDM2 settled +5 at 44.0. EDU2/EDZ2 had a new high settle at 29.0. Tightening fear is concentrated in the near contracts. EDM2 settled 9895.5. A few weeks ago someone bought EDJ 9900/9887.5 put spread for 1.0. I thought it was a waste of premium but it’s now in the money. Straddle levels are extraordinarily high. Last week there was a buyer of the atm 9912.5^ in June for 28.0. On Friday, the 9900 straddle settled 31.0 vs 9895.5 and the 9912.5^ settled 34.0. After the December FOMC there had been a large seller of the then at-the-money 9900^ at 50.5. In less than two months the contract has fallen 65 bps and the current 9837.5 straddle is 61.5. The rapid central bank pivot to hawkishness has blown up many strategies.
–Many curve measures ended at new lows. 2/10 fell 2.8 to 60.6. 5/10 down 4.4 to 44.2 and red/gold euro$ pack spread down 3.5 to just 18.125. EDH3/EDM3 still has a spread of 15.5 (9817.5 and 9802.0) but if we look at the four contract packs starting EDM23 and EDM26, then red/gold would be just 10.75.
–This week brings auctions of 3s, 10s and 30s starting tomorrow.
