Can't Have a 3 Standard Deviation Move Every Day

Yields fell after the FOMC meeting, with the ten year treasury -7.5 bps to 185.6, however, the Bank of Japan's inaction is a much larger influence on prices across the board this morning.  US yields have pushed even lower as the Nikkei fell 3.6% and $/yen traded in the low 108 handle, near new lows.  These moves are likely to cause reverberations and a possible risk-off episode across asset classes.
--The US curve flattened after the Fed, with 2/10 down 3.4 bps to just above 102.  Red/gold euro$ pack spread fell 4.625 to 73.25.  Both of these are near new lows.  In spite of crude oil's recent rally (late yesterday to a recent new high, +1.26 to 45.30 in CLM6), the long end of the US market is loathe to price in any sort of inflation premium.  While many observers said the Fed left the door open to a hike in June, I would say that the overt reference to an economy that has slowed is a more important factor going forward.  In any case, if the curve presses to new lows, I would suspect a whole new round of forced activity will ensue.  Heightened awareness of lacking liquidity could easily see a repeat of the October 2014 treasury flash crash.  I am not predicting that, just saying the "standard deviation models" might have to be re-calibrated.  
--However, if one simply looked at euro$ straddles and volatility, the conclusion would be that prices will never move again.  Let me give a few examples, last Friday ED futures prices closed very near their current levels.  For example, on Friday EDM7 9900^ was 47.0 ref 9896.5, yesterday it settled 44.0 ref 9896.  The Sept midcurve 0EU 9887.5^ went from 36.0 to 33.5.  EDM8 9875^ was 86.5 on Friday ref 9869.5, yesterday settled 84.0 ref 9870.5.  These levels appear too cheap given the global environment.  Skew in treasuries likely to shift once again toward favoring calls.


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