Nov 21. All of a sudden it’s important to hedge
–ESZ starting the holiday week near new highs and crude oil is up 74 cents with CLF7 over $47/bbl in a formation which looks similar to the bounce off August lows. Two year auction today; the w/i was 1.07 late Friday, a safe and relatively juicy yield, especially in light of the upcoming Italy referendum. Also today, the Chicago Fed National Activity Index; a negative value indicates slower than average growth. The 3 month moving average has been negative for 20 straight months, and today will make it 21.
–The Chinese yuan continues to edge lower with CNYUSD 6.8961. A headline in the FT notes that Malaysia is asking foreign banks to stop trading the ringgit. Emerging market stresses continue to grow.
–Yields ended at their highs on Friday, with tens trading 235 late and 30’s over 3%. All near eurodollar calendar spreads made new highs, with the peak one-year spread now March’17/March’18 at 45.5 bps. Prior to the election all one-year calendars were around 16 to 18 bps. Red/gold pack spread closed at a new high 93.625, up 5 bps on the day. While calendars on the front end of the curve have surged, the back end remains relatively flat. For example, the blue/gold pack spread (4th to 5th years) closed just below 23.5 bps. Barrons this weekend brought up the idea of the US issuing 100 year bonds.
–5’s and 7’s are auctioned Tuesday and Wednesday. Dec treasury options expire on Friday’s shortened session. Note that the largest open interest in a near strike is the 125 put with 74k. 125.5 puts have been whittled down to only 44k (TYZ6 125-18s). Open interest in all treasury futures rose on Friday as hedging is suddenly in vogue; open interest in tens was up 101k contracts on Friday.
