Thu, 2019-07-25 08:09 by Roseanne
Sent by alert(s): Global Squawk Box
NEW YORK, July 25 (IFR) –
*Treasuries have been following bunds all session so far—indeed
the ECB statement was dovish– left rates unchanged (widely expected) but
opened the door to rate cuts (sees rates at present or lower levels for as long
as needed), more QE (staff will review options for potential new asset buying)
and a tiered system for rates (banks rally on this tidbit). But there is no
particularly dovish nuances from uber ECB dove Draghi. Profits are being booked
on both sides of the pond, with the pre-ECB longs in TYU and USU getting
*Large steepening bets are being plied—that blocked trade about 10 minutes after Draghi began speaking was a steepener and lined to a large overseas macro fund: sold 2.392k UBU9 at 176022 vs. buying 10.304k TYN at 127-22.5. But more steepeners are being plied in cash 2s/10s by trading accounts and real money.
*Swappers have been lifting Eurodollar Reds in decent size—makes sense vs. the ECB “tiered system”—will take pressure off of inter-bank funding, less demand for Libor, should narrow FRA/OIS. But the fly in that ointment is if Treasury ups T-bil issuance before the usual seasonal lift in late Q3/early Q4.
*The 20-tick rally over the past week in TYU and with the FOMC ahead has encouraged out right longs to exit—the leverage crowd is leading these trade, though dealers relay real money is a seller—also deemed profit taking and pretty much across the curve.
*Option VOL ticked higher into the ECB—TYU VOL opened at 4.05% vs. Wednesday’s 3.97% settlement. A large downside risk bet in FVU is a standout trade—hedge fund bought 41k FVU 117 puts (at ‘6.5)—strike equates to 1.96% yield.