US TSYS: Eurodollar/Treasury Option Roundup, Bullish Rate Hedging
FI option trade remained mixed Thursday though upside call and call spread buying lead volumes as underlying Eurodollar and Treasury futures continued to march higher. Notably, yield curves recovered from early flattening to steeper (2s10s +2.024 at 29.763 vs. 22.474 low) as the short end unwound Wednesday's more aggressive rate hikes from additional three to four 50bps hikes by year end to two over the next two FOMC meetings.
- Chances of additional hikes in the second half of the year receded Thursday. Cumulative hikes for July (9.5bps) are not far off when the US came in but there have been larger slides on the day further out. Both Sep (133bp) and Dec (181bp) are ~5bp lower than prior to US CPI.
- Highlight trade included large buying over 80,000 August 97.81 calls from 5.5-6.0 (50k blocked overnight) that fits in well if your expectations are for less hikes in the second half of the year. Of the various put trades, a notable conditional curve spread faded the late curve move: block buy of 6,000 short Aug 96.50/Green Aug 96.75 put spds, 1.0 net debit for the conditional bear flattener.
- Highlight Treasury option trade included a scale buyer of over 26,000 TYM 121 calls, mostly at 11 and 10,000 TYU 123.5 calls at 33.0. Reminder that June options expire next week Friday. Bullish bond trade included a sale of 8,000 USN 130 puts at 15 and early buy of 7,500 USN 146/147 call spds at 7.
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FRANCE: Bank of France Economic Report
- BANK OF FRANCE PUBLISHES MONTHLY ECONOMIC REPORT, Bbg
- BANK OF FRANCE CUTS 1Q GDP ESTIMATE TO ABOUT 0.25% VS 0.5%, Bbg
- FRANCE'S VILLEROY SEES MORE DIFFICULT ECONOMIC TIMES AHEAD, Bbg
US: Late Corporate Credit Update: IG5 Back Near Steady/Off Lows
Investment-grade corporate credit risk climbs back near early session highs as stocks trade weaker into the FI close.
- Near steady, investment grade risk measured by Markit's CDXIG5 index currently +0.093 to 72.917 vs. 70.091 low; CDXHY5 high yield index mildly higher at 103.831 (+.027).
- Outperforming credit sectors (tighter or least wide): Energy and Communications sectors (+1.9-2.0), former as oil and gas names rebound w/rise in crude. Latter sees ATT, Comcast, Time Warner, NBC, Verizon debt risk narrowing.
- Lagging sectors (wider or least narrow): Materials sector debt risk extends: +3.8 from +1.98 at midday, precious metals mining debt underperforms. Financials, SR and subordinated (+3.3).
EURJPY TECHS: Still Trading Below Its Recent High
- RES 4: 139.00 High Aug 21 2015 and a key resistance
- RES 3: 138.62 High Aug 25 2015
- RES 2: 137.50/53 High Feb 2 ‘18 and major resistance / High Mar 28
- RES 1: 137.13 High Apr 11
- PRICE: 136.12 @ 16:07 BST Apr 12
- SUP 1: 133.94/90 Low Apr 5 / 20-day EMA
- SUP 2: 133.15 High Feb 10
- SUP 3: 132.06 50-day EMA
- SUP 4: 131.59 Low Mar 22
The recent EURJPY pullback from 137.53, Mar 28 high appears to be a correction and the move lower has allowed an overbought condition to unwind. Support to watch is 133.94/90, the Mar 28 low and the 20-day EMA. A break would open 133.15, the Feb 10 high. The primary trend remains up and the bull trigger is 137.50/53. Clearance of this hurdle would expose 138.62, the Aug 25 2015 high.
