November 11. Pointing out the obvious
–Yields continue to rise like the phoenix from the ashes. Since the employment report last Friday, blue Dec (EDZ19) has fallen 50 bps. At the time, the Blue Nov (3EX) 9850 straddle was 13, and December was 22.5. As we might say with the benefit of hindsight, those levels were too cheap (you’re welcome). And it’s not over, as November midcurves expire today, an illiquid holiday. The ten year was up another 4.5 bps yesterday to 211.5. All curve trades made new highs with the peak euro$ one-year calendar spread now at 36.0, Dec’17 to Dec’18. From a fundamental basis, I think one-year spreads around 3/8% or 37.5 make sense in the near term, as the Fed is likely to maintain a gradualist approach. Note that Yellen is now scheduled to appear before Congress next Thursday.
–2/10 treasury spread tacked on another 3 bps to a new high of 121. Red/gold eurodollar pack spread is now almost 84 bps (up 4.625), having been as low as 50 bps a month ago. I know I’m pointing out the obvious, but it’s not at all clear that hemorrhaging from offsides positioning is anywhere near over.
–Once again there was heavy volume in interest rate futures. Open interest rose a whopping 480k in eurodollars as, suddenly, the need to hedge rates became apparent. The June’17 contract alone added more than 100k contracts, however, at a price of 9794 or 1.06%, it still seems a bit ‘rich’ with libor now setting above 90 bps.
–In tens, there was a new (adding) buyer of TYZ6 125.5/124.0 put spread for 4-5/64’s, settled 5 ref 127-18. Dec options expire in two weeks and the top strike is around 25 bps away, a yield level of around 2 3/8’s on cash tens.
–One last note concerns China yuan, which is at another new low with USD/CNY 6.807. We will be in today though trading floors are closed.
–Veterans Day. You may not like Trump, but one of his themes is to thank and honor those that have served in the armed forces.
