Tens and Williams today, CPI tomorrow
January 10,2024
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–SEC site was compromised, leading to erroneous info about bitcoin etf approval. Though it caused a bit of volatility in bitcoin, price action wasn’t easily discernible from any other day’s activity. Of course, they could NEVER hack the BLS right? On the other hand DoD is pretty good at keeping secrets, so we got that going for us.
–Rates were boring yesterday. Tens up 2 bps to 4.019%. Solid 3-year auction, with tens today and thirties tomorrow. NY Fed’s Williams speaks today, shortly after futures settlements are posted, 3:15 EST.
–CPI is tomorrow. Jan midcurve options expire Friday. Both 0QF4 and 2QF4 atm straddles settled 15 (midcurve straddles on SFRH5, 9636.0s and SFRH6 9670.5s). There was a block yesterday, +SFRU4 9500/9450p 1×2 which settled 3.25 (8.75/2.75). This trade works if the Fed just stays on hold and doesn’t ease. Of course, there are also a lot of trades predicated on cuts starting as soon as March, for example a buy of SFRH4 9500/9512.5/9525c fly for 1.25 (settled 1.0 ref 9491.5). SFRZ3 went out at 9463 on option settle, a rate just above EFFR of 5.33%. A cut in March would mean EFFR of 5.08 or 9492.0; the next FOMC is May 1, about six weeks into the period. The 9500 strike could be in play, and of course the contract just traded at that price, but time is starting to bring final settle for H4 into focus (in the absence of large outside catalysts).
–Yesterday, Barr, Fed Vice Chair on banking supervision, indicated that the BTFP would likely NOT be renewed when it ends on March 11. This program was put in place for the regional banking emergency last year. Funds may be borrowed for 1 year; current level isn’t huge at $141 billion. Perhaps a takeaway is that the Fed is slowly pulling back the banking safety nets. Over the weekend, Logan noted that bank reserves are no longer super abundant, and said that repo rates might display some volatility as liquidity is distributed through the system. At the margin there might be a bit more pressure on the banking system. Possible that the de-stigmatized discount window comes back into play?
