Simmering down – except bitcoin
March 29, 2023
–Rate futures continued to recede as fears of bank contagion abate. SFRH4 and M4 both down 12 at settlement to 9613.5 and 9646.0. The ten year note rose 4 bps in yield to 3.564%. Implied vol in rates eased. SOFR straddles are now being quoted 3 to 6 bps wide rather than 10 to 14 wide during the panic. Having said that, SFRU3 9550^ settled yesterday at 107 (ref 9548.5). As a comparison, on 3/7, three weeks ago, SFRU3 atm straddle was the 9437.5 strike (ref 9435.5) and the premium was 53.5, exactly half of yesterday’s value. On March 15, SFRU4 atm straddle was the 9600 strike (ref 9598.5) at 142.
–FRC closed yesterday at 13.50, down 2.3% and down 90% from February. While the worst of the funding crunch might be over, expensive dislocations continue. I saw a bunch of CDs yesterday 1yr to 1.5yr at various banks over 5%. Not sure if bitcoin is a leading indicator of traditional banking system stress, but worth noting that it’s back near the high of the panic move this morning, around 28500. Both stocks and crude oil continue to rebound, with CLK3 now back to $74.
–There were a few decent size SOFR option trades yesterday. Buying of 30k SFRZ3 9550p for 48-48.5 appears to be an exit. SFRZ3 atm 9575^ settled 128. Seller of 80k x 140k 0QJ3 9537.5/9500p 4×7 (sold 9537.5p at 1.75 and paid 1 for the 9500 strike) was likely an exit before quarter-end, but the for the opposite side it was a new position because OI didn’t change.
–7 year auction today.
