Market already prices Bostic’s thoughts
June 25, 2021
–Today PCE deflator is released, the Fed’s preferred inflation measure. Year over year expected +3.9% from 3.6% last. YOY Core expected 3.4 from 3.1 last, levels which haven’t been seen since 1992.
–The infrastructure bill moved closer to reality and banks easily passed the Fed’s stress test; bank share buybacks are coming, along with more gov’t stimulus. Bostic said he now expects the Fed’s initial hike at the end of 2022. The EDZ21/EDZ22 calendar which I mentioned yesterday, made another new high for the year, up 0.5 to 32.5. January ’22 to Jan’23 FF spread settled 26.5 (just above one 25 bp hike). The market already reflects Bostic’s thoughts. Continuing Wednesday’s theme, green eurodollars are seeing the most selling pressure on the curve. Yesterday the ten year yield was unch’d at 1.485 while the green eurodollar pack (EDU’23 thru EDM’24) settled -1.375 at an average price just over 98.81 (a yield of 1.19%). Four hikes by December of 2023? Someone thinks so… There was a buyer of 35k 2EV 9875/9850 put spread at 6.5, which is where it settled with EDZ23, the underlying contract, at 9886.0. The options settle October 15 of this year, so it’s all about market expectations over the next 3.5 months. Another large trade of note was a roll down: -50k 0EU 9975p vs +25k 0EZ 9937.5p at 19 to 19.5 credit. Settles 14.25 vs 9961.5 in EDU2 and 9.0 vs 9946 in EDZ2. Roll down to a longer dated out-of-money put and take cash off the table.
–July treasury options expire today. TYU settled 132-05+ with TYN 132.25c settling 5/64 and the 132p at 4/64. Option open interest suggests a pull to the downside.
