Futures Curve by Accutic

Treasury Trading Update.

3 month dollar libor setting came in around 30 basis points today. With Dec. ED futures scheduled to expire Monday the 13^th of December and with futures currently trading 9961 there is currently a 9 tick differential that will have to be made up. Ither the libor setting will rise or futures will get bid up. Markets are clearly concerned about the health of the banking system in Europe. Some one passed a note along recently inquiring about a think tank report suggesting that the ECB will continue its unlimited funding programs in to the first quarter of next year. It seems that anything that must be done to keep banks liquid will get done, we could well be in the infancy of the amount of bail outs that will have to be continued and undertaken. Just think of the at least 26 states in this country that will need funding help from the Federal Government.

Trading wise just now we are seeing good buying in the EDU 95/96 c 2X3 paying 8.5 for about 10K. Earlier near the open there was fairly aggressive put buying by TJM putting some pressure on Dec. and Mar. ED futures. Currently prices steady to up marginally.

Larger trades from a.m. session listed below:

11/30/2010
TJM	B	3,750	EDZ 9937.5 p	1	9961.5
TJM	B	4,000	EDF 92 puts	8	N/A
TJM	B	2,000	TYF 91 puts	6	N/A
Paper	B	1,000	EDF9937 strad	27	^9937
TJM	S	10,000	EOH 91/93 c spread	11.5	N/A
TJM	S	5,000	EOH 90/92 c spread	14.5	N/A
Paper	B	5,000	EDF1 91/93 p spread	5.5	9941/41.5
CCM	B	2,000	EDF1 9900 put	4.5	N/A
New Edge	B	10,000	EDU 9950/9962.5 c 2X3	8.5	9928.5/29
Paper	S	2,000	EDZ0 9950p	2	9961.7/62
Paper	S	5,000	EDM1 9900 put	12.5	9935.5 area
Clearly a bit less bearish tone on these last few trades…
10yr.
Paper	B	1,000	TYF126/127 c spread	0.14	12411.5/12
Crossland	B	500	TYH 127/128/129 c fly	0.05	12412/12.5
1st Op	B	500	TYF128/129.5 c spread	0.06	12412/13
New Edge	B	500	TYG126.5/128 c spread	0.21	12412/12.5
Paper	B	1,000	TYH124.5 Strad	3.35 and 3.36	12412/13
Paper	S	500	TYH 116/118/120/122 p condor	0.2	12412.5/13
Paper	B	3K X 4.5K	TYF124.5/126 c 1X1.5	0.22	12414/1
Local	B	1,000	TYF125.5/127 c spread	0.25	^12409.5
Smith B	B	5,000	TYF124.5/126/127.5 c fly	0.19	12415/16
Paper	B	2,000	TYF125/127 c 1X2	.20 and .21	12415/16
New Edge	B	2,000	TYH122/126 combo call over	0.07	^12409
Smith B	S	2,000	TYF126.5 call	.21 and .20	12409.5 to 11.5
Paper	S	500	TYF 125.5/126.5 c spread	0.17	12410.5/11

Treasury Trading Update

A couple of positives which include heavy buy back schedule this week plus tomorrows month end extension on the bond indexes. Treasury prices did move higher up until just before the buy back operation commenced. Since then there has been a decent pull back. Over all the curve has flattened a bit but some of that has dissipated as well.

Seeing good call buying in both Eurodollar options and treasury options this a.m. Price action has turned sideways, however momentum on the daily charts remains down currently.

I do not, nor does anyone else for that matter know where all this QE will lead. Over the weekend however I did listen to an interesting interview with Anatole Kaletsky. http://www.financialsense.com/financial-sense-newshour/in-depth/anatole-kaletsky/capitalism-4-0I

I think he is right in that a "mega expansion" of monetary policy globally by the western economies is what lies ahead and is probably the only option. Given that, and the belief by our current monetary leaders that they do have the tools to expand and contract capital via treasury purchases, more aggressive purchases may well be coming.

More later. Larger trades from this a.m. listed below.

 

11/29/1930
TJM	S	2,000	EDJ 9912.5p	2.7	N/A
New Edge	B	3,000	EDH 9950/9962.5 c 1X2	3	9949 area
Paper	S	5,000	EDH 9925 put	8	N/A
New Edge	B	15,000	EDZ1 93/96c1X2	9	9917.5/18
Paper	B	250	EDM1 9937.5/9950 strad stupid	70	N/A
CCM	B	10,000	EDM1 9962/9975 c spread	3.5	N/A
Paper	B	5,000	EOZ 9925 c	4	9918.18.5
10yr.
CCM	B	10,000	TYF126 calls	.21 to .23	12426 to 28
UBS	B	5,000	TYF122/123.5 p spread	0.32	N/A
CCM	B	10,000	TYF126 calls	.22 and .23	12424 area
Paper	B	500	TYG125.5/126.5/127.5 c tree	0.01	12427/27.5
CCM	S	600	TYF 124 strad	2.13 to 2.12	12426/27
Paper	B	1,000	TYF119.5/120/121 p fly	0.06	12425/26
Paper	B	2,500	TYG128c/12H122 put diagnol	0.52	^12328
RJO	S	500	TYF124 strad	2.12	^12328

 

Treasury Trading Update.

Right now the situation is this – 3 month dollar libor setting has moved up by one basis point over the last 3 session basically from 28 to 29. However the EDZ futures have moved at least 5 basis points lower during that same time period. It seems very possible the cash inter bank lending markets could move higher and justify what is going on in the futures contracts.

Central banks have learned a lot during the crisis, one is printing money obviously, the other is by coming up with clever things to say and not say. These policies are starting to show some cracks as treasuries seem to be trending away from targeted levels. No buy backs scheduled for today, however next week shows over 30bln. Scheduled to be bought back in various maturity ranges below is a snapshot:

Below some of the larger flows from a.m. session. Note : Shortly after 11:00 a.m.c.s.t. on a block trade 30,000 Feb. 5yr. 121.5 calls traded at a price of .15 futures were around 11918.7 the instigator was clearly a buyer as the market for that option with futures at that price was offered for smaller size at 13.5. Given the trader wanted 30K and did not want to muck about in the pit a price of .15 was executed.

11/26/2010
Paper	B	2,000	EDF 9925/9937 p spread	2.5	9945 area
Paper	B	1,000	EOF 9950 c	0.5	9906.5/07
Cube	B	3,000	EDZ2 9875/9900 c 1X2	4.5	9862.5/63
Paper	S	500	EDH3 9850 strad vs. EDZ2 9862 strad	26.5 H over	N/A
Paper	B	2,500	EDM1 91/93 ps vs EDZ1 87/90 p s	1  M over	N/A
New Edge	S	12,000	EDH3 9900 calls	5	^9845.5 20%
New Edge	S	8,000	EDH3 9900 calls	4.5	N/A
10yr.
Paper	S	3,000	TYF 122.5 put	0.41	^12424/23/22.5
Paper	S	2,000	TYZ124.5/125 c spread	0.18	^12426
30yr.
Merril	S	5,824	USF 133c	0.11	12708 area
Merril	B	800	USH 128c	2.11	12708 area
Above trade being executed as a 100 X 728 ratio - working more getting out of Jan into Mar most likely
Fed Fund
Smith B	B	500	FFN 9981 call	2.75	9977.5/78

Treasury Trading Update

Very interesting day – Dec. Eurodollar futures broke from 9968 area to 9959 area. Just see chart.. We have gained back half the ground – and no one has given a definitive story. Best I’ve heard is some sort of emergency ecb meeting was rumored.

Longer end under pressure as well.

With Dec. treasury options scheduled to expire this Friday there could well be some pressure on short positions in the 125 put strike helping to hold futures prices down. That and the general dismay that continues to be expressed over the current QEII program.

Coming into today’s session open interest shows there is still over 85K open in the Dec. 125 puts and the 124 puts have open positions of over 84K. Shorts have the option of buying them back or selling futures in anticipation of being dealt a long position at the strike price.

Also of note today the build America Bonds program may well get extended another year. According to a stroy on bloomberg today they sold around $169 bln. of these federally subsidized municipal bonds this year and if they not going to extend the program this would be quite bearish for municipal debt in general.

Larger players today include but not limited to the following:

11/24/2010
TJM	B	5,000	EOH91/92/93 vs. - EDH91/92/93 cfly	1	N/A
Paper	B	5,000	EDZ9950/9962.5 p spread	2.75	9963.25
10yr.
Paper	B	500	TYZ124p	0.02	N/A
Paper	B	1,300	TYZ126/127 c spread	0.04	12424/26
Paper	B	3,500	TYZ125 strad	.36 and .27	N/A
Paper	S	500	TYZ125 strad	0.35	12426/27
Paper	B	500	TYZ125/125.5 c 1X2	0.02	12428/29
Paper	B	1,300	TYF121/127 combo	.05 put over	^12330 TYH
Smith B	S	500	TYF124.5/125.5 c spread	0.23	^12329 TYH
New Edge	B	900	TYF119/120/122 p fly	0.15	12427/28
Paper	B	1,800	TYZ124.5p	0.08	12427
TJM	B	3,000	TYF126.5/127.5 c spread	0.08	12422
Fed Fund
New Edge	B	500	FFH 9987.5 c	0.75	N/A
Paper	B/S	500	FFH9981/9987 c spread	1.75	N/A
Tradelink	S	250	FFZ9981 strad	2	N/A
TJM	B	2,000	FFZ9981/9987 c spread	1	N/A

Treasury Trading Update

Rocket attacks in Korea and rumors of bombings in London pushing treasuries and bunds up today. I heard bunds moved up 20 ticks on the London rumors. Hear in the states with the mandate for low rates in the long end these sorts of events provide a strong stimulus given the current low inflation and continuing buy backs. The events so far have not caused daily trends to reverse up, however we do have an inside day on the 10yr. charts which often signals a change in trend. Take a glance at chart below.

Note TJM was active in the Early going in ED options - of course there were a lot

more trades than these just did not have time to capture all today. Further note the

last couple trades in 10's push vol. up a bit for this late in the day FOMC minutes later today.

11/23/2010
TJM	S	5,000	EOZ87/90c1X2	6.5	N/A
Paper	B	6,000	EOH93/EOM95 c spread	4
TJM	B	10,000	EOZ93/95 c 1X2	2.5	N/A
10yr.
CCM	S	500	TYZ128c	0.02	12519/19.5
Paper	B	500	TYZ125.5/126.5/127.5 c fly	0.14	^12519
JP Morg	S	500	TYZ126.5c	0.09	12520/20.5
Paper	B	500	TYZ127c	0.06	12519/19.5
New Edge	S	500	TYZ125/126 s spread	0.31	12519/19.5
Paper	S	2,000	125.5/126 c 1X2	0.02	12518/19
JP Morg	B	700	TYZ128c	0.02	12517.5/18
Paper	B	800	TYZ125/125.5 c spread	.20 and .22	^12520
Mann	B	1,000	TYZ125.5/126.5 c 1X2	0.03	12519/19.5
Paper	B	500	TYF122.5/TYZ124.5 p 1X2	.17 Jan over	.N/A
RJO	B	700	TYH124p	1.27	^12425
Paper	S	1,700	TYZ126.5/TYF128c diag	even sell dec	12521/21.5
CSFB	S	2,500	TYZ126 straddle	0.54	^12521
Paper	B	4,000	TYZ125p	.08 and .09	12519.5/20
Smith B	S	800	TYH124.5 strad	3.33	12526/27
Swiss B	B	500	TYF126.5/127.5 c spread	0.13	12521/21.5
JP Morg	B	2,750	TYZ126 c	0.15	^12519
Paper	S	500	TYZ125.5 c	.28 and .27	12521/22
Merril	B	1,000	TYZ125.5c	0.29	^12521
Paper	S	1,000	TYZ127/127.5 c 1X2	even 127.5 over	12519/19.5
New Edge	B	5,000	TYF126.5c	0.28	^12427 and 27.5
New Edge	B	5,000	TYF126.5c	0.29	^12427.5

 

Treasury Trading Update

This post just an update on open interest. As you can see decent amount of trades yesterday involved getting out of Dec. positions and into Mar. 11 futures. Dec. options expire this Friday and first notice day is one week from today which is Tuesday the 30th.

11/22/2010
Calendar Rolls		Calendar	Rolls
US		US
Swiss B	S	1,000	USZ/H	0.52
JP Morg	B	2,000	USZ/H	48.7
Contract	Volume	OI	Chng.
USZ	325K	534K	down 31,175
USH	69K	93K	up 3,302
TY
Gold	B	2,000	TYZ/H	0.3
Morg St	B	1,000	TYZ/H	0.31
Citi	B	1,700	TYZ/H	0.31
JP Morg	B	1,000	TYZ/H	31.5	12422 5%
CSFB	B/S	4,700	TYZ/H	30	12428 5%
Morg St	B	2,000	TYZ/H	0.3
Contract	Volume	OI	Chng.
TYZ	1 million	1.35 mln	down 37,508
TYH	127K	167K	up 55,555
FV
Swiss B	B	5,000	FVZ/H	2.37
Citi	S	8,000	FVZ/H	23.3 and 23.5
Mann	B	2,000	FVZ/H	23.7
Morg St	B	4,700	FVZ/H	23.7
Contract	Volume	OI	Chng.
FVZ	577K	1.004 mln	down 60,736
FVH	110K	153.9K	up 75,075
TU
CSFB	B/S	4,700	TUZ/H	0.27
Swiss B	S	2,000	TUZ/H	0.27
Merril	B	2,000	TUZ/H	0.27
Morg St	S	3,000	TUZ/H	0.27
Contract	Volume	OI	Chng.
TUZ	279K	534K	down 48614
TUH	108K	93K	up 65467
Ultra
Contract	Volume	OI	Chng.
ULZ	69K	271K	down 17,888
ULH	34K	54K	up 25,822

Treasury Trading Update

This may be the most relevant piece of information I looked at this a.m.. As some of you may have seen already I queried a colleague of mine about the possible return of bond vigilantes. That term was used for sellers  of treasuries that were concerned about inflation. That term was resurrected over the weekend in Barrons as we saw a pretty good pull back in treasury prices as yield rose several basis points especially in the longer end. My associate noted the following:

On the “bond vigilantes” front, let’s be very clear that those guys don’t exist anymore. Let me put it to you this way – have you seen the “Lone Ranger” anywhere on TV recently? I rest my case. What we have now are macro overlays in hedge funds and a bunch of momentum players that can whip things around when they see the street offside – either too short or too long – but they’re very short-term oriented for the most part.

 

I note that the recent announcement of 2/5/7 year UST auctions is $19B less than the auction announcement just this past March for these maturities and is coming at a time when the Fed is back in as a major buyer. Don’t see any vigilantes willing to take a bullet for a stand in such a supply/demand differential. That’s my guess anyway.

This is a good point and as sensai noted it will be worth keeping an eye on the relative size of issuance moving forward.

Larger flows in 10's listed below:

10yr.
Paper	B	500	TYZ125.5c	0.08	12413/13.5
Paper	B	2,000	TYZ126/126.5 c spread	0.02	12411/11.5
Paper	B	3,000	TYZ127.5c	0.01	12410.5/11
New Edge	S	2,000	TYZ125/TYF124c diagnols	0.46	12424/24.5
New Edge	S	4,000	TYZ125.5c	0.05	^12422.5 and .23
New Edge	B	5,000	TYZ125.5/126 c spread	0.03	12420.5/21
New Edge	S	3,000	TYZ125.5 strad	1.00	^12422
New Edge	S	1,000	TYZ125.5/127c1X2	0.09	12423/24
New Edge	S	1,000	TYZ125/TYF124c diagnols	0.46	12424/24.5
New Edge	S	3,000	TYZ124p	0.07	^12423
Paper	S	1,000	TYZ127p	2.09 to 2.07	12427/29
Mann	S	1,000	TYZ124.5/125 p1X2	0.03	12424/25
Paper	S	3,000
CCM	B	2,000	TYZ123.5p	0.02	12427/28
Paper	S	2,000	TYZ124/TYF121.5p diag	0.17	12416/16.5
CSFB	B	8,000	TYF125.5/126.5 c1X2	0.02	12424/24.5
New Edge	S	2,000	TYF125.5/127c1X2	0.09	12424.5/25
Paper	B	1,000	TYH120/128 combo	0.11	^TYH12400
Mann	B	5,000	TYZ125.5/126 s spread	0.04	12426/26.5
New Edge	S	3,000	TYF126.5c	0.12	^12428.5
1st Op	S	1,000	TYF126/127 c spread	0.11	12429.5/30

 

Treasury Trading Update

Sorry a bit tied up with trading strategy this a.m. will try and get something out a bit later.

 

Treasury Trading Update

• Selling pressure overwhelming QEII

 

• Daily trends strengthen to the down side.

 

• Call structure buying in Mar. 10yr. options continues however a move towards 2.5% is on hold.  ***

 

• Our pigs (states) are running into serious difficulties as the rout in munis adding to rate pressures in long term treasuries.

 

*** Re call structure buying contacts have indicated some of this may be forced hedges to protect insurance companies and others that have commitments such as annuities and so forth. A move towards a 2.5% yield on benchmark 10yr. notes (currently around a price of 12715 on Dec. 10yr. futures), would cause them losses on future commitments.

No doubt some are still trading speculatively as I advocated yesterday that 2.5% on benchmark 10’s remains the target. However such a move is not materializing. Rather daily and weekly trends on 10yr. futures are firmly down and prices look to head lower for now. QEII looks to be failing and I must reassess.

 

Problems that the US has been able to avoid through QE 1 are now coming home to roost similar to the problems re-emerging in the Piigs in Europe. Our municipal bond market which is $2.8 trln. in size “could form the future nexus of systemic financial risk”, according to an article in today’s financial times. The article concludes by saying $1 trln of this market is owned by individual investors and if the possibility of default becomes more imminent there could be a major rout in that market. Already this week that market experienced one of the largest one day increase in yields since the height of the financial crisis. If a full blown crisis were to occur perhaps money would head towards treasuries in a flight to safety, but what seems to be happening now is the selling is wide spread and the only buyer is the Fed and $600 bln. probably will not be enough.

A colleague noted yesterday that mortgage applications dropped by the most this year as an increase in borrowing costs last week caused refinancing to drop 17%. 30yr. mortgage rates had risen by 18 basis points. It seems the Fed has a real dilemma on it’s hands and will have to buy a lot more debt moving forward. This is getting very problematic as newly elected fiscal conservatives want to do away with stimulus programs  - such as the 35% subsidy the federal government gave to the Build America Bond program which accounted for 25% of new muni bond issuance this year.

Larger flows from a.m. session posted below:

11/18/2010
Paper	B	2,000	EDZ2 88/90 c spread	2	N/A
Paper	S	2,000	EDU93 strad 39 to 38	39 to 38	N/A
New Edge	S	4K X 8K	EOZ 92/93 c 1X4  legs over	0.5	N/A
Drax	B	2,000	EDM3 9975c	63 and 64	N/A
TJM	S	5,000	EDZ95/96/97 c fly	4.5	N/A
Paper	S	5,000	EDM95/97 c spread vs. 87 p	7.5 cspred	^9848 50%
Paper	B	3,000	EOM 91/95 c spread	12.5	^9892.5 30%
TJM	B	4,000	EDZ2 87/90 c 1X2	3.5	9857/57.5
Paper	B	5,000	EOF88/91 pspred	7.5	N/A
Fed Fund
Dowd Wesc.	B	3,000	FFK87/93 c 1X2	0.5	N/A
Mann	B	500	FFJ9975/9981 p 1X2	even for 81 p	N/A
Mann	S	2,000	FFU/FFM 9987 c calendar sell M	even	N/A
Fortis	B	1,500	FFM9987c	0.75	N/A
New Edge	B	1,000	FFZ 9981/9987 c spread	1.25	N/A
Mann	B	1,000	FFK9987c	0.75	N/A
Spread
Screen	B/S	20,000	EDZ1/EDH2 futures spreads	15 to 13.5
Block trade
5yr.	B/S	9,843	FVZ posted 9:34 a.m.c.s.t.		11931.5
10yr.
CCM	S	600	TYH123.5 strad	3.41 to 3.40	12415.5/16
TJM	S	500	TYZ124.5c	0.32	^100%12414.5
Swiss B	S	1,000	TYH120.5/122/1223.5 p fly	0.11	12415/15.5
Fuji	B	3,000	TYF120.5p	0.17	12417.5/19.5
JP Morg	B	4KX6K	TYH125/127 c 1X1.5	0.23	12418/18.5
Yesterday they bought abouth the same amount and open interest up in both so adding to position.
Paper	B	500	TYH127c	0.33	^12315.5
JP Morg	B	4KX6K	TYG124.5/126c 1X1.5	0.15	12416/17
Paper	B	500	TYZ125.5/126.5/127.5 c fly	0.07	12417/18
New Edge	B	4KX16K	TYF125/128c 1X4	.15 and .16	12406 to 10
Paper	B	7,500	TYZ122 p	0.03	12406 area
30yr.
Paper	B	1,500	USF124p	0.47	^12424
Merril	B	1,500	USF132/USH134 c diag  USH over	0.21	N/A
Vision	B	3,500	USF120/131 strangle	.57 to 1.00	N/A
This was covering a short position for a small loss according to floor sources

Treasury Trading Update

With Dec. 10’s currently printing 12508 the benchmark 10yr. yield is 2.80%. Now keeping in mind that the Dec. 10yr. futures is currently tracking the cheapest to deliver cash instrument that matures in 2017 there is some spread risk associated with the following level. Not withstanding this comment and the full disclaimer:

The information in these pages is for informational purposes only. The sources for the information including the exchanges themselves are deemed reliable by the writer. However the writer makes no representations or warranties as to the accuracy of the information in these reports. Commodity trading is very risky and before considering trading commodities you should consult with a bona fide financial professional. The CFTC nor  the NFA nor the exchanges make any warranties as to these writings.

Please take note of the chart below. A level of 2.5% would roughly equate with a Dec. 10yr. futures price of approx. 12714.5 currently. I believe those levels are worth playing for. However you may want to use the Mar futures as your guide. Jan., Feb. and March options are exercisable into March futures. The level that equates with 2.50% in Mar. would be approx. 12614.