Minutia
July 23, 2020
–Once again, a light volume trade in rates with a bias flatter. Tens fell 1.1 to 59.4 while 30s fell 2.2 to 1.29%. On the euro$ curve, marginal new lows were posted in spreads from reds to deferred, with the red/gold pack spread just under 39 bps. 2/10 notched a new low at 45.
–The ten yr inflation-indexed note equaled its all-time low from late 2012 at -91.7, having ended yesterday at -90.5. This of course, is helping to push USD to new lows, with DXY closing at its lowest level of the year, matching the spike low in March. “Investors” are thus pushed out the risk curve into can’t lose bets… like TSLA. However, these moves are having no effect on treasury vol, which remains under the blankets. With 30 days until expiration, atm TYU 139.5^ settled below one point at 62/64’s. The expiring August straddle settled at just 14. To give some small indication of compressed vol in the aftermath of the dislocations seen in March, note the following: At every treasury option expiry, there is a large buyer of wings to replace protection that is rolling off. Yesterday for example, there was a buyer of >60k FVU 123.75 puts for 1/64 (FVU settled 125-26). On April 21, FVM0 settled 125-17+, not all that far from the present level, but at that time he was paying 2 for 40k FVM 118.5 puts. I.e. he paid double for puts that were 5 points further out of the money. Also on April 21, he paid 2 for 50k TYM 131 puts ref 138-31. With futures now 139-18 (TYU), the 136 puts settled 2, three and a half points otm as opposed to eight. Of course, VIX was around 40 in mid-April as opposed to 24 now.
–Jobless claims today.
