Key Takeaways with Craig

The market volatility we saw to close out last week continued into today’s session as US Equity prices fell sharply again today.  In the last two trading sessions, we’ve seen 30-day implied volatility in the E-mini Nasdaq-100 options increase from about 30% to nearly 37.5%, though that number is still below some of the readings we saw in the middle of May.  Also, the 25-Delta Puts have been bid relative to the Calls over the last couple of trading days but, again, not the extent we saw in the middle of May. 

US Treasury prices also sold off sharply which means that yields rallied today.  According to the Micro US Treasury Futures prices the 2-Year yield is currently trading at about the same yield as the 10-Year after inverting last night.  As we’ve talked about from time to time in this column, historically, when the 2s versus 10s have inverted, it has oftentimes been followed by a recession.  Again, according to the Micro Treasury Yield futures, the net daily changes were as follows:

  • 2-Year: +30 basis points
  • 5-Year:  +24.5 basis points
  • 10-Year:  +22.5 basis points
  • 30-Year:  +17 basis points

The higher than expected CPI number from Friday has led to much speculation about what the Fed will do at the end of the FOMC meeting on Wednesday.  While there is some discussion about a 75 basis point hike in the financial press, CME Group’s Fedwatch tool is pricing in a nearly 72% chance of a 50 basis point hike to its Fed Funds target rate and a 28% chance of a 75 basis point hike.  One week ago, the tool was pricing in a 97% chance of a 50 basis point hike. 

We’ll leave our readers with a QuikStrike graph of the 2-Year Treasury options risk reversal (25 Delta Call volatility minus Put volatility).  As  you can see, with today’s price move in the 2-Year, the Puts were bid dramatically over the calls relative to where they’ve been over the last three months.  Remember, these are the traditional CME Group 2-Year Treasury futures that are quoted in price, not yield, which, as we alluded to above, move inversely to one another.  

Today's Future Price Action

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