Nov 22. Flows suggest steepening has ended for now
–While net changes in interest rate futures were small, there were quite a few position adjustments of note. First, open interest continues to rise in almost all interest rate contracts. For example, there was a large seller of EDH7 yesterday which closed -1.0 at 9896.5, with an increase in OI of 62k. Total ED OI +170k. Ten year futures added 106k open positions and fives 73k as the roll also gets underway.
–There was continued buying of the EDH7 9887/9875 put spread for 1.25. In red midcurves, option premium was crushed, with many straddles losing 1 or more bps. For example, 0EF 9850 straddle was sold at 20 during the day and settled 19, -1.5 on the day, with EDH8 down 0.5. Heavy new sales as well in 0EF 9837 puts at 4.0, and the 9837p was a targeted sale in other red contracts as well.
–In treasuries, the shift leaned bullishly. For example, TYZ 125.0 puts (26 delta) expiring Friday were sold on an exit, with OI dropping 34k, and rolled into TYF 121.5 puts which have an 11 delta. Large purchase of TYZ6 126.5 calls for 5 and 6. Settled 6 ref 125-175. OI was up 53k.
— In summary, flows indicate continued pressure on the very front end of the curve, but a flattening bias and possible squeeze higher in longer maturities. In terms of the 126.5 calls, they had a delta of 15 at settlement, with Fed minutes released tomorrow, auctions of 5’s and 7’s today and tomorrow, holiday Thursday and short day Friday.
–Crude oil surged yesterday, with CLF7 settling up 1.88 yesterday at 48.33, and it’s higher yet this morning, nearing 49. Stocks continue their Trumpian rally, blustering to new highs.
