Misfit toys
Dec 17, 2019
–The exuberant rally in GBP has reversed, appropriately leaving an island top on the futures contract, as a hard stance on Brexit negotiations looms. Any chance of an equally hard reversal in US stock index futures? Probably not…
–Rate futures tumbled yesterday with the ten year note yield up 7 to 1.889%. 2/10 edged to a new recent high at 24.6. In dollars, reds fell 8.125, while greens and blues were down 9.0. Implied vol continues to be blanketed, though there was a large buyer yesterday of 0EF0 9837/9850 strangles for 6.5 in 35k. Underlying is EDH21 which settled 9843.0, expiry is Jan 10. So breakeven is 9856.5 (recent high earlier in the month is 66) and 9831 (recent low was right at the 9837.5 strike). I marked TYH 128.5^ at 1’43, 3.8 vol, a new recent low, even though 7 to 8 bps moves are becoming commonplace in the contract.
–April FF settled 9846.0, indicating almost NO chance of an ease over Q1. FFF0 settled 9844.5 and FFG0 9844.0. The lowest one-year euro$ calendar is still the front EDH0/EDH1 which settled -18.0, right at the recent high. Stocks sit near all-time highs, the dollar index is showing signs of softening, the CRB commodity index is on the verge of an upside breakout, ten year inflation-indexed note to treasury spread notched a new recent high at 174.3 bps. On paper, the possibility of a hike should be every bit as likely as an ease. But paper has a way of catching fire, and at the first whiff of smoke the Fed comes in with bells and sirens and a lot of water. For example, EDU0 9875/9887.5 call strip was bought 20k yesterday, settling 8.5 (5.0 and 3.5) vs EDU0 9837.5. The equidistant puts, 9800 and 9787.5, settled 1.0 and 0.75. Puts are like the rejects on the island of misfit toys. Lonely and unloved. For now. But maybe someone’s going to want a Charlie-in-the-box someday.
