Interest Rate Recap: FOMC Dot Plot Shows No Cuts For 2020 - Zzzz

Eurodollar Rates Futures mostly up, tight ranges
STIR Option Volatility down on the day
Interest rate futures volumes low
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: December 11, 2019

Another Fed day, which means minimal activity up to the afternoon announcement. And with an uninspiring release, not much was added late in the session. Tight ranges in most futures, with ranges of 4-5 ticks throughout the entire curve, up to the pit close when futures caught a bid following Powell’s Q & A.

 

Big Eurodollar Option Trades

Tuesday:

EDU0 98.125/98.25 put spread vs 98.875 call, selling the call for 1.5 tick credit, 20K (see note)

EDM0 99.00/99.25 call spread, paying 1 on 10K

EDM0 98.625/98.875/99.00 call fly, paying 2 on 10K

Wednesday:

Short Jan (E0F) 98.375 put vs Short Feb (E0G) 98.75 calls, paying 0.5 for E0G, 20K (see note)

Short Feb (E0G) 98.625 call spread, paying 2.5 on 10K.

 

Things to Watch in Interest Rate Futures

1) Fairly muted response to FOMC. Basically, looks like the Fed is on hold for the foreseeable future. The language suggests that the bar for more cuts has been raised. In fact, the dot plot shows no cuts for 2020. Being an election year might factor in at some point, but it looks like we will have to wait and see.

2) The Sep trade looks like our Asian Hours Block Trader. Hasn’t operated in EDU0 before and the size was 20K, where they normally work in 40K lots. But the sale was most likely well through any bid that would have been available. Most likely that market would have been 2-3, with perhaps a small 2.5 bid. The reason being locals are short a lot of the 98.875 calls (from the EDU0 call spread buyer, buying 98.75/99.25 call spreads and 98.875/99.375 call spreads). Plus, they are also long the 81/82 put spread from all the put fly strips that have been bought (EDM0/EDU0/EDZ0 98.125/98.25/98.375 put fly strips). So a chance to take off position at a flat or slight winner would have had a lot of takers!

3) And while we’re on the subject of the Asian Hours Block Trader, it looks like he’s closing up some positions. The E0F/E0G spread closes out the E0F put position and reduces the E0G position. The current position looks to be short 98.875 calls in E0F and long the 98.25/98.375 put spread in E0G while also short the E0G 98.75 and 98.875 calls.

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