Hard Landing?
August 4, 2021
–Yesterday it was reported that Alphadyne lost $1.5 billion in the treasury short squeeze. Enough to exacerbate the move? Probably, but hardly a reason for continued strength in tens. This morning Tracy Alloway of BBG highlights a compelling chart, noting a strong correlation between airline stocks and the ten yr yield this year. “Treasury yields and airline stocks are still moving together, more than a year after the start of the pandemic. The question is what exactly are airline stocks reflecting? Clearly, they’re a proxy for Covid-19 fears – as worries over a spread of delta cases go up, airline stocks go down.”
–Yesterday’s option activity appeared weighted towards the downside, but the ten year yield was unch’d at 1.172%. New low in EDU21/EDU22 calendar spread at 12 bps, down 0.5 on the day, even though there was a buyer of 35k 0EU 9968.75/9962.5ps vs 9974.5 for 1.0. Just before the June FOMC, EDU2 was right here at 9975. After the hawkish dot plot it traded to 9960 and ended the month of June at 9962.5. Since then it began marching back, helped along by the July FOMC. So now we have 0EU 9975p settling at 3.25 vs 9975.5 with 37 days until expiry, as if there’s no chance at all of ever seeing this contract in the 60’s again. And I suppose that’s probably right.
–In tens there was a buyer of 10k TYU 134/133ps which settled 11 vs 135-00. Short cover buyer of 20k TYU 135.75c from 17 to 20, settled 20.
