Key Takeaways With Craig

By Craig Bewick
JUL 28 2020

Despite all the goings-on this week including a plethora of big technology company earnings reports, FOMC meeting, negotiations for another coronavirus relief bill on Capitol Hill, Congressional antitrust hearings for large tech firms and of course, the re-open vs re-close debates, US Equity markets have been fairly steady over the first two trading sessions.  Stocks were lower today, but not by large amounts (though they did sell off into the cash market close) and volatility in the options markets remains near steady. 

Other CME Group markets were a bit more active.  As we’ve written about extensively here in the Key Takeaways section lately, Gold futures prices were higher yet again today, though silver was near steady.  Implied Volatility in both Gold and Silver options markets were both higher today with 30-day vol in Gold options reaching nearly 27%.  Remember, in addition to the standard Gold futures and options contracts, CME Group also lists a Micro Gold futures contract that is 1/10 the size, allowing for even more flexibility in your trading.  The Micro Gold traded over 220,000  contracts on CME Globex today. 

As the FOMC meets today and tomorrow, CME Group’s FedWatch tool, which seeks to predict the likelihood of Fed changes to the Fed Funds target rate based on the price of the Fed Funds futures, suggests that there is no chance for a rate hike through March of next year.  Indeed, the consensus certainly is that the Fed won’t move rates tomorrow but it will be listening to its accompanying message about the economy and its anticipated actions.  US Treasury futures prices were higher throughout the entire yield curve, indicating lower yields today.  In fact, yields at the shorter end of the curve approached all-time low levels.  We graphed the implied yield of the 2 Year and 5 Year Treasury note futures along with the Ultra T-Bond future in the image below from CME Group Treasury analytics to illustrate the historically low interest rate levels.  Remember, CME Group Treasury futures tend to track a cash treasury instrument known as the Cheapest to Deliver (“CTD”).  The CTD is identified using fixed income math applied to all of the instruments eligible for delivery for a given futures contract.  Therefore, the 10-Year futures contract, for example, actually tracks a treasury instrument that mature on May 15, 2027; less than seven years to maturity.  In order to provide fixed income traders with additional points along the yield curve on which to take a position, CME Group re-introduced a 3-Year Treasury Note future a couple of weeks ago. 

ABOUT THE AUTHOR

Craig Bewick has spent 25 years in futures and options markets, starting at CBOT and CME working in risk management, regulatory, technology, product management and client development. 

After 8.5 years with WH Trading LLC, Craig returned to CME Group as the Director, Client Development and Sales, working to educate and promote futures trading. Craig currently writes for InFocus Options Corner.

Connect with Craig at activetrader@cmegroup.com

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