Interest Rate Recap - Futures Lower Across Board

Futures lower across the board
Volatility lower as event risk passes
Floor and screen volume near even
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: November 4, 2019

Quiet overnight leads to a tame day session. Markets showed little interest in economic numbers and instead took their cue from equities, which advanced on more trade wars talk. Futures finished near their session lows.


Big Trades 

Short Dec (E0Z, EDZ0) 98.375/98.50 put spread 1x2, paying 1.5 vs 98.48 on 10K

Short Dec (E0Z, EDZ0) 98.25 puts, selling 10K at 1.5 vs 98.48

Short Dec (E0Z, EDZ0) 98.125 puts, paying 1 vs 98.41 on 35K

EDU0 99.75/100.00 call spread, paying 0.5 on 10K (see note)

EDZ9 98.125 calls, paying 3.5-3.75 on 30K (see note)

 

Things to Watch in Interest Rate Futures
 

#1 Interesting trade in the EDU0. This could be a bet on the Fed going back to the 0-25 basis point range that we came from. Or it could be the condor player taking off the short call spread leg. They have been long the 99.375/99.625/99.75/100.00 call condor since this summer. I don’t get the feeling, based on the current environment, that we are heading back to 0-25 bps by next September, nor could I get much support for that from an impromptu trader poll. My guess is a strike adjustment.

#2 Last Friday I wrote about the EDZ9 98.25/98.375/98.50 call fly position (long about 200K from 0.75-1.0). I had speculated that based on last week’s FOMC meeting this might be a reach. Although not an expensive position, I would expect to see some players adjust their targeted strike down to the 98.00 to 98.125 levels. Today, we had a large buyer of EDZ9 81 calls. I would guess that theses calls would require not only a pause by the Fed, but a contraction of FRA/OIS. Not sure if these are a new position, but paper has been long the 80/81 call spread for some time. Perhaps covering the short strike? Open interest will give us some more clues tomorrow.

#3 The future of SOFR got a boost today. According to Bloomberg, the New York Fed plans to publish compound averages for SOFR beginning in the first half of 2020. This will create 30, 90 and 180-day benchmarks in addition to an index allowing custom time period calculations. With SOFR options scheduled to start trading after the new year, this could be the catalyst for more trader involvement. Over the last several months we have seen improved trading volumes in the SOFR futures, so the timing seems good. I would expect to see more SOFR related news as we head into the year-end.

 

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