JOB CLAIMS POOL
March 26, 2020
–If I were at the office today, I would have suggested a $5 pool on ‘closest to the JOBLESS CLAIMS number’. I am going to guess 1.75 million.
–Yields yesterday were fairly well contained. Curve steepened in dollar with red pack just barely positive at +0.125, greens -3.5, blues -5.625. I marked 2’s down over 7 bps at 32.2 and 10’s up 1.4 bps at 84.5. Senate passed $2.2T stimulus package, stocks have eased on the time-tested, ‘sell the fact, because the virus isn’t stopping…’
–Just a few notes highlighting continued dislocations: 1) treasury vol crushed again. I guess you could say that a MONTH of time premium came out of the USM straddle in one DAY. That is to say, on Wednesday, the MAY bond atm straddle settled 7’14, and JUNE atm straddle 9’58. Yesterday USM straddle settled at 7’32, almost where May was on the previous settle! The USK 178^ settled 5’16. Is it a good sign that vol is coming out, suggesting ‘normalcy’? Maybe….but consider 2) April ED contract settled 98.91 or 1.09% while EDM0 settled 99.415 or 58.5 bps, a spread of -50.5. It was -10 two weeks ago. 3m libor has been around 1.25% while 3m bills are negative. This ISN’T normal and indicates plenty more front end volatility and funding issues. 3) Ford cut to junk with a lot more in line.
–There were some large option trades: EDN0 9987c 1.25 paid 40k (new). EDU0 9962/9975/9987c fly 4.5 paid 40k (appears to be roll up). EDU0 settled 9961.5.
In FV, there was a large profit taking sales of 35k FVM 125/125.5/126.25/126.75 c condor at 13, originally bought for 3 to 5 earlier in the month. Also a new accumulating buyer of FVM 125/126/127 c fly for 19. This settled 17 vs FVM0 124-24. DV01 of the contract is around 54, so a move to the middle strike would suggest a yield of approx 23 bps, and I marked 5’s yesterday at 51 bps, so right around 28 bps for fives. At least it’s positive.
