Nov 16. Interest rate vol crush
–Turnaround Tuesday in interest rate implied volatility as Dec Treasury straddles were hammered. For example, on Monday USZ 154.5 straddle settled 3’04 and yesterday at 2’30, a drop of over 2 vols. TYZ 126.5^ fell from 1’16 to 1’01 (7.1 to 6.1). Blue and gold Dec midcurve straddles also fell 3 bps. While rates were stable to just slightly higher (tens rose 1.5 bps to 223.7 and 30 yr fell 1.2 to 297), there is renewed pressure this morning with TYZ trading 126-03, close to Friday’s low of 125-305. Positions are still heavily offsides, and that is likely the biggest factor driving the market.
–Once again new highs were made in some of the near eurodollar calendar spreads. Peak one-yr is still Dec’17/Dec’18 at 42.5 bps (+0.5 on the day). As spreads approach 50 bps it’s consistent with expectations for two hikes next year. However, strength in USD may still temper actual Fed hikes, as a stronger ccy acts as a restraining factor. New low this morning in yuan with USDCNY 6.8758 and the yen has also made new lows with $/yen 109.62. (Beat the tariffs by depreciating the currency).
–News today includes PPI expected +0.3 with Core +0.2 and Industrial Production +0.1.
