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July 21, 2020
–EU deal for more stimulus was agreed upon today, sending stocks and precious metals to new highs for the move (or very close to new highs). However, rate trading is increasingly lethargic. To get a sense, look at the one month ranges in ED one-year calendar spreads: from Sept’21/Sept’22 at a current level of -7.5, to Sept’22/Sept’23 at a current level of 12.5. There is no spread with a monthly range larger than 3.5 bps and most have moved only 1.5 or 2. Large trade yesterday was buyer of 40k 0EZ0 100 calls for 3.0. This option has EDZ’21 as underlying contract, which settled 9979.5, so 20.5 away. It expires on 11-Dec of this year. This trade may be a spec for negative rates, or a stock crash play for post-election, but more likely is just to cap upside risk. There has been buying in various contracts of 9975/9987 call 1×2’s which leaves open-ended risk above 100. For example, yesterday there was a buyer of 20k 0EU 9975/9987 c 1×2 which settled 4.25 ref 9981.5.
–Once again, ten year inflation-indexed note made a new low yield, now at negative 86 bps. The breakeven for CPI inflation is 1.478, which is the difference between the tip yield and the regular ten year treasury at positive 61.8 bps.
–Chicago Fed National Activity Index today expected 3.2 from 2.61 last. August treasury options expire Friday with TYQ 139.5 straddle having settled 23 yesterday. The Sept version settled 1’03; we’re right back to atm TY straddles being around 1 point with one month to go.
