Key Takeaways with Craig
US Equity indexes began the day higher but, unlike yesterday, built on those gains to close broadly higher. The Nasdaq led the way today, up by 3%. Implied volatility in CME’s Equity index options fell but remains above a one-standard deviation move relative to the last three months. WTI Crude Oil futures prices continued to decline, down another 7% today, while implied volatility in the options ticked up.
Wheat futures prices rose by about 5% today and, while they are off of recent high levels, both price and volatility remained extremely elevated at 1,157 and 72.6% (30-day) respectively. To put that 72.6% in perspective, the average closing level over the last 10 years is about 26%.
US Treasury yields, were little changed ahead of tomorrow’s FOMC decision, but as we’ve mentioned recently here in the Key Takeaways section, the curve has flattened since the middle of last year. According to the Micro Treasury Yield futures contracts, the difference between the 5 and 10-Year yields has shrunk to only about 3.5 basis points. While those two points on the yield curve are not as closely watched as, for example, the 2 Year versus 10 Year (which is currently at about 24 basis points), the shape of the yield curve bears watching. As we look toward the Fed’s decision on its Fed Funds target rate, expected tomorrow afternoon, we’ve used QuikStrike data to graph the 25 Delta Risk Reversal (Call volatility minus Put volatility) over the last month. As you can see, after the Calls were bid (remember, that’s on a contract quoted in price, not yield) earlier in the month, the Puts in all three tenors are trading higher than the Calls now.
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