GBP: Options Flag Further Downside Risk For GBP/USD
Apr-27 15:27
- Options markets picking up on GBP weakness in a similar fashion to spot, with 3m risk reversals tilting back below 2 points in favour of puts today - which will mark the lowest close since mid-March and the initial Russian invasion of Ukraine.
- This steepens the SMILE curve further in favour of OTM puts, with the curve shifting considerably over the past week as spot GBP/USD slides and flagging further downside risks in the pair.
- On a fundamental basis, GBP is now the second most undervalued currency in G10 (with JPY in the bottom spot) using a BEER model, which gauges GBPUSD as over 20% undervalued relative to fundamentals.
- Wednesday's move proves that markets remain happy to sell the pair despite technically oversold signals. Earlier this week, the 14d RSI flagged that the pair was most oversold since March 2020 and the initial wave of COVID - but the pair has shown few signs of bottoming out.
- Key supports to watch include 1.2495 (61.8% retracement of the Mar 2020 - Jan 21 bull leg) as well as 1.2423.
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EURIBOR OPTIONS: September Call Condor Buyer
Mar-28 14:58
ERU2 100.25/100.375/100.50/100.625 call condor bought for 3 in 10k
US TSYS: Twist Flattening Ahead Of Sizeable Supply
Mar-28 14:51
- Having largely unwound the overnight sell-off, 2Y Tsys have found more resistance of late with yields still 4bps above Friday’s close.
- This comes ahead of substantial Tsy supply, with the $50B 2Y (1130ET) and $51B 5Y (1300ET) note auctions along with a combined $105B in bills also at 1130ET.
- Meanwhile, longer-term yields slide further, with the 10Y and 30Y rallying 5.5-6.0bps.
- This sees 2s10s almost 10bps flatter at 11.5bps, off an earlier low of 9bps which had moved within 15bps of the brief inverted lows in mid-2019.
US TSYS/SUPPLY: Preview 2Y Note Auction: Historic Concession
Mar-28 14:49
The Treasury comes to market shortly (1130ET) to sell $50B of 2Y Note - the first of two benchmark auctions today (5Y is up at 1300ET).
- The 2s sale comes with the short end under pressure amid speculation of faster and more aggressive Fed rate tightening.
- The last 2Y auction was on Feb 22, $52B: decent sale with a small stop through (1.553% high yield vs. 1.57% WI; 2.64x bid-to-cover vs a 5-auction avg of 2.56x).
- To call the move in yields a "concession" vs the previous auction would be an understatement, with a current bid yield of 2.31% (albeit down from above cycle highs above 2.40% intraday) representing a 65+bp discount vs last month's offering. The trailing 5-auction average high yield is a mere 0.88%.
- It will be interesting to see whether this augurs well for demand. BMO points out that this is the biggest rise in yields on an auction-vs-auction basis on record, "and this fact should translate to a solid dip buying backdrop".
- 2s5s are only a little flatter vs a month ago (21bp vs 32bp), but bear flattening is very much evident further out (2s10s at 11bp vs 38bp).
High yield When-issued yield Trade through (tail) High - Median Spread Bid-to-cover Primary Dealer Percent Indirect Percent Direct Percent Offering Amount 5-Auction Avg 0.88% 0.89% 0.2 4.3 2.61 24.25% 59.35% 16.40% 56 22-Feb-22 1.55% 1.57% 1.7 4.3 2.64 15.65% 65.58% 18.77% 52 24-Jan-22 0.99% 1.00% 1.2 4 2.81 24.61% 66.00% 9.39% 54 27-Dec-21 0.77% 0.76% -0.7 4.4 2.55 24.22% 61.39% 14.39% 56 22-Nov-21 0.62% 0.61% -1.3 4.8 2.36 37.21% 45.62% 17.17% 58 26-Oct-21 0.48% 0.48% 0.1 4.1 2.69 19.55% 58.14% 22.30% 60
