March 5. Employment week
–The populist wave continued in Italy with a surge in votes for Five Star and League. The euro absorbed the news easily, US stock futures tested last weeks lows but have rebounded as well. Rate futures are seeing a small bounce from Friday’s sell off. Tens rose 4.3 bps Friday to 285.3. Blues and golds were the weakest on the dollar curve, -6.25 and -6.5.
–China affirmed a growth goal of around 6.5%, while committing to de-risk the financial sector.
–Large trade Friday was buyer of 100k EDZ8 9725/9712 put spread for 1.75. This trade represents a 4 hike scenario. Recall that EDZ17 settled just above 9837, so with 4 hikes, EDZ8 would be expected around 9737. Indeed the 9737 strike was initially targeted before lib/ois spread widened, and there had been selling of the 9725 strike as it seemed out of play. Targets have now been set lower; EDU8 9750/9737ps is also seeing buyers having settled 2.25 vs 9767.5. On the long end there was a size buyer >50k TYJ 120/119.5 ps (30k block 10 vs 120-16). Settled 12 vs 120-06, appears to have been a roll-up as OI declined 16k in 119.5p to 182k (still the peak OI strike) and gained 50k in the 120 strike to 128k. Also a new buyer of 25k TYM8 119p which settled 36 on open interest increase of 22k. There are a couple of lows in TYM just below 119-16 from late Feb. Employment data is Friday which could provide a test of the 3% yield.
–Today’s news includes non-mfg ISM, expected 59.9 from 58.8.
