March 9. AHE bigger than NFP?
–Employment report today with NFP expected 205-210k and Average Hourly Earnings +0.2. Last month it was the +2.9 yoy increase in earnings that sparked inflation concerns. While TYM has been consolidating around the 120 strike, red and green eurodollars have been edging lower in front of this morning’s data. Late buyer of about 50k 0EJ 9712/9700 put spread for 1.5 ref 9728.5 in EDM9. For a long time, the first red couldn’t break through the 9800 strike (EDM9 will be the first red in a couple of weeks as march expires).
–Ten year yield down 1.7 to 286.4. While net changes weren’t particularly large yesterday, activity was fairly heavy in eurodollar calendar spreads, and seems to reflect a view (at least over next couple of years) of ‘don’t fight the Fed’. The trend is for higher yields. For example, there was an early buyer of 20k EDU8/EDH9 24.0/24.5. This trade almost looks like buy of one hike with a free option on another for the six month period (and no, it’s not that easy). There was also a buyer of 30k EDZ8/EDM9 for 20.5 in 30k. Finally, a buyer ot 10k EDM8/EDZ9 for 59.0. Some of these trades appear to be rolling out of short fronts and adding to shorts further back. For example, EDU18 open interest fell by 16k. However, the contract with the most open interest on the curve continues to be EDZ19 with a whopping 2.145 million open. Next largest are EDZ8 with 1.89m and EDM8 with 1.63m. EDZ9 settled 97.15 or 2.85%. This is less than 75 bps higher in yield than the soon to expire EDH8 contract… so only 3 more hikes? One might consider it ‘expensive’ in the context of increasing inflationary pressures.
–Auctions of 3 and 10 year notes on Monday. 30 year bond auctioned Tuesday.
