Rates Markets More In Tune With Trade War Than Economic Data

A quiet overnight session with tight futures ranges and minimal option activity
Floor volume almost 5x screen volume
Most trades focused on upside
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: August 27, 2019

 

Futures put in their low early in the session, then proceeded to march higher over the course of the trading day. Second-tier economic numbers didn’t do much to influence direction. Once again the market was more in tune with trade war rhetoric than economic data.

 

Big Trades
 

EDH1/EDM1/EDU1 99.25/99.375/99.50/99.625 call condor strip, selling 5K at 1 (see note)

EDZ0 100.00 calls, paying 2.5 on 20K

EDH0 99.125/99.625 call spread, paying 4 on 25K

EDZ9 98.00/98.125 put spread (5x), Jan (EDF0) 98.125/98.25 put spread vs 98.75/99.00 call spread (4x), buying EDF0 call spread, paying 26 on 7K (+28K v -35K, see note)

EDH0 92 calls, paying 4.5 on 15K

 

Things to Watch in Interest Rate Futures
 

#1 I had to seek clarity several times when I heard the price of the call condor strip. 1 tick for three call condors? But then I remembered what we are dealing with.

https://ccm.quikstrike.net/ChartImages/BANTIXWFENLB02/VSC_000010.png?ea31b7f0-d06e-40f3-bb21-6a58c17e33b6
Source: Quikstrike

As we rally up, that call slope comes in for the higher strikes. The assumption would be that if we are trading up there, things aren’t too great and we could be there for a while. I think it also shows a lack of conviction for negative rates as well. If we were looking at the possibility of negative rates, I would expect that slope to continue its trajectory and give more value to not just the par (100.00) calls, but also the calls beyond that. But that isn’t the case…yet.

#2  We’ve had some pretty wild moves in volatility recently. It looks as if the September FOMC is a forgone conclusion, so EDU9 has fallen off the pace of the other front contracts. But the other three contacts (EDZ9, EDH0, EDM0) remain near their recent high levels. The EDZ9 contracts (EDV9, EDX9, EDZ9) have seen a lot of action recently. It’s not surprising given that EDZ9 is the only expiration this year that captures a Fed meeting. Don’t be surprised to see more of this.

 https://ccm.quikstrike.net/ChartImages/BANTIXWFENLB02/CMEHAV_000008.png?9bde6cc6-c0ee-48ed-86d0-6fb2f82abe33
Source: Quikstrike

#3 We recently have viewed some action in the January contract. One player has bought almost 80K of the Jan (EDF0) 98.75/99.00 call spread vs selling the 98.125/98.25 put spread. Today, it was done vs the EDZ9 98.00/98.125 put spread. Not sure the motivation here doesn’t cover any other Fed meetings. It could be price sensitivity.

 

 

 

About the Author

Albert Marquez works for Chicago Capital Markets (CCM) and covers Eurodollar & Treasury Options and Futures. Albert can be reached  on Twitter @STIR_Report or amarquez@ccmmarkets.com