The market for interest rates may be getting a little bit too bearish over the last couple of sessions. Yesterday the fed minutes indeed did reveal that the entire discussion did revolve around tightening and not easing or QEIII. The interesting part of the thought process revealed the following:
Step one - Stop re-investing proceeds from early prepayments on the feds mortgage portfolio holdings. Also at about the same time stop re-investing principal payments on treasury holdings.
Apparently the majority of the FOMC preffered to raise rates 1st prior to any outright sales of securities. This would allow them to cut rates – if indeed the economy started to falter. So as things stand now Step two would be raizing rates and step three would be selling assets outright (as opposed to simply not re-investing maturing securities or pre-paid securities.
There has been a fair amount written about the “fears” many participants have in regard to the upcoming end of QEII. There is evidence that even though the end of the treasury buying program could force rates higher – there is equal evidence that new buyers will step in as they have in the past and rates will remain at their current levels. Rather than go into all the details I would suffice to say that as usual the charts will provide enough guidance as to how rates are looking to trade. Currently they do look to be poised to rise after falling steadily from the 11th of April.
Shorter term with June options set to expire tomorrow I did see what looked to be short covering in the June 122 calls – and possibly new buying in June 122.5 calls – probably related – see players list below.
Early tone was set when EU’s Junker said that a comprehensive package – including “soft restructuring” of Greek debt caused some resumption of equity buying and exits from safe securities. US securities did get hit on very weak economic data at 9:00 a.m. but currently are rebounding off the lows. The weak data did cause treasuries to rally, however not enough to be a safe sale yet. Will be looking at put structures and bearish combo’s vs. the long bond if prices can get a little higher – call for details.
Larger flows from a.m. session listed below.
| 5/19/2011 | |||||
| Paper | B | 5,000 | EDZ1 90/92/95 p fly | 2 | 9957 area |
| TJM | B | 5,000 | EON 85/87 p 1X2 | 1.5 | 9892 area |
| Paper | S | 15,000 | EOZ 92/93 c spread | 2 | ^9862 |
| New Edge | S | 6,000 | EDN13 9812 c | 7.5 | 9779.5 |
| Paper | S | 5,000 | EDM13 9825/9850 c spread | 4.5 | |
| Deutche | B | 4,000 | EDM12 87/90 p spread vs see below | ||
| Deutche | S | 4,000 | EDZ1 92/95 p spread | 2 June over | N/A |
| TJM | B | 7,000 | EDU13 9725p vs EOU 9850p | 4.5 for EDU13 | N/A |
| Paper | B | 10,000 | EOU 82/85 p spread | 3.5 | 9893.5 area |
| Paper | B | 5,000 | EDZ1 90/92/95 p fly | 2 | 9957 |
| Paper | S | 5,000 | EDZ92/93 c spread | 2 | 9863/63.5 area |
| Paper | B | 5,000 | EDN13 9837c | 3 | 9783.5 |
| Fed Fund opts | |||||
| Paper | S | 600 | FFZ 9987- FFF9981 p diagnol | .75 Z over | N/A |
| Paper | S | 1,000 | FFN 9987c | 2.5 | 9989.5 area |
| Mann | B | 750 | FFN 9981p | 0.25 | 9989.5 area |
| RJO | S | 1,000 | FFX 9981 c | 4.5 | 9983/83.5 |
| Paper | B | 1,000 | FFG9950/9975 p spread | 4 | 9975/75.5 |
| 10yr. Opts | |||||
| Pre data | |||||
| Paper | B | 1,000 | TYM123c | 0.02 | 12210.5/11 |
| Post data | |||||
| Paper | S | 5,000 | TYM122.5c | 0.03 | ^12203 |
| New Edge | B | 1,000 | TYM121.5/122.5 combo | .02 call over | ^12205 |
| New Edge | B | 500 | TYU 120.5 strad | 3.03 | 12203/03.5 |
| New Edge | S | 1,000 | TYM122.5 p | 0.24 | 12205/05.5 |
| Mann | B | 5,000 | TYM122.5 c | 0.02 | 12200 area |
| Paper | B | 4,000 | TYM 122c | 0.1 | 12200 to 03 area |
| Buyer of 122 strike looks to be large short covering also talk large buyer of 122.5 strike may be hedging? | |||||
| June options expire tomorrow so if short the strike you will be assigned a short postion @ 122 if June | |||||
| futures settle 12200 or higher. | |||||
| CCM | B | 2,000 | TYN118/120 p spread | 28 | N/A |
| TJM | B | 2,000 | TYM121.5/122 p 1X2 | 1 | 12213/13.5 |
| Adv | B | 1,500 | TYN118/120 p 1X2 | 0.15 | 12213/13.5 |
| Barclay | S | 2,000 | TYM122.5c | 0.06 | 12211/11.5 |
| CCM | B | 1,000 | TYN122.5 c | 0.2 | 12211.5/12 |
| RJO | B | 1,000 | TYM122p | 0.02 | 12212.5/13 |
| Paper | S | 1,000 | TYN 123c | 0.12 | ^ 12026.5 |
| Paper | S | 1,000 | TYN 123c | 0.12 | ^12027.5 |
| Working to sell more this way. | |||||
| 5yr. Opts | |||||
| Smith B | B | 2,500 | FVU117 put | 0.38 | ^11725.5 |
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