Expect Interest Rate Traders To Focus On Upside To Continue, Pullback Was Short-Lived

Heavy overnight volume
Futures trade in a relatively tight range for an NFP day
Volatility lower across the board
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: October 4, 2019
 

Big overnight volume, as option trades totaled about 600K before the pit open. It seemed as if the market had a hard time deciphering the data, as futures traded their entire range immediately after the number. Blame it on the algos and low liquidity. As the smoke cleared, futures remained lower on the day, as the market doubted the employment number’s ability to add fuel to the October rate cut narrative.

Big Trades
 

EDZ9 98.625 calls, paying 2 vs 98.19 on 37.5K

EDZ9 98.875/99.125 call spread, paying 0.75 vs 98.21 on 12K

Jan (EDF0) 98.50/98.75 call spread 1x2, paying 0.5 on 27K

EDH0 98.125 put vs 98.375/98.50 call spread, paying 3 for the call spread vs 98.545 on 20K

Nov (EDX9) 97.875/98.00 put spread vs 98.25/98.375 call spread, paying 1.75 for the call spread vs 98.185 on 20K

EDX9 98.125/98.25/98.375 call tree, paying 2.75 on 17K

EDH2 99.50/99.75 call spread 1x2, paying even for the 1 leg on 10K

EDH0 99.00/99.25 call spread 1x2, paying 0.25 for the 1 leg on 10K

 

Things to Watch in Interest Rate Futures
 

#1  As I stated, most of the day’s volume was traded before the pit open. And it was all very one-sided, as market participants didn’t hide their belief that the NFP number would only strengthen the case for an October rate cut. But it wasn’t that cut and dry. The headline number missed, but last month’s number was revised up. In fact, it was the first time in the last 6 months we haven’t had a downward revision. A 50-year low in the unemployment rate with the labor force participation rate steady. Plenty of material breaking down the number on the InterWeb if you search for it, but interesting to see the volume and direction of Eurodollar options prior to the number, and the slowdown in action after.

#2 A very odd trade went through today in the futures. There was a large block of Dec/Jan futures traded. 20K EDZ9/EDF0 futures spreads were bought at -14.5. I’ve been doing this a long time, don’t remember many blocks involving serial futures. The obvious assumption is some sort of year-end funding play. But most often market participants express this in the much more liquid options market, not the futures. Coming into today the open interest in EDF0 futures was only about 70K. And when you do trade these serial futures, you are typically in it form the duration. It would be very difficult to get out of that type of size.

#3 Very much a one-way street today with trades. With the massive retracement we’ve had in futures since we hit the lows in mid-September (which, ironically started with a stronger than expected Non-manufacturing ISM number) and the disappointing Non-manufacturing ISM number, most players were just waiting for a soft NFP to push us back to and beyond our recent highs. But alas, that was not to be. Regardless, I would expect the focus on the upside to continue, as the last “serious” pullback was short-lived.

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