You guys playing cards?
October 19, 2022
–Yesterday afternoon, I jotted a note to myself, “long bond trades soft…20y auction Wednesday.” This morning USZ trades 122-25, down 25. As attached chart shows, the contract was at a high of 145-12 at the start of August. Is that what you call a down-trend? 20-yr auction reopening is $12 billion. WI was 4.29% at futures settle, pretty much the highest yield on the treasury curve outside of 2s that ended 4.435%. Yesterday I cited 10/30 spread above zero as indicative of weakness at the long end, especially so in light of high odds of aggressive hikes in Nov and Dec. 10/30 yesterday up nearly 2 bps to 2.2. UK inflation prints 10.1%, a 40 year high.
–Beige Book today. Evans and Bullard speak after the close. Admin looking to further drain the SPR in front of the election. Those empty barrels are really useful for fires on urban street corners when it gets cold.
–Buyer of 20k 0QX2 9525/9500ps vs 2QX2 9587.5/9562.5ps for 3.0. These are SOFR midcurves on SFRZ3 and SFRZ4, expiring on November 11 (24 dte). Synthetic short of SFRZ3/Z4 spread. Settled 5.5 in former ps vs 9549.5 and 3.75 in latter ref 9621.5. So the red midcurve (0QX2 on SFRZ3) is 24.5 out-of-the-money to top strike and green midcurve is 34 otm to top strike. The difference between top strikes is 62.5…the lowest SFRZ3/SFRZ4 has settled is -74.5, and that was on Friday. If the futures spread were to stay around -75 with SFRZ3, for example 9510, then the red midcurve put spread would have 15 intrinsic and the 2QX put spread would have just 2.5 intrinsic.
