Key Takeaways with Craig
US Equity prices began the week sharply higher as all four major US indexes rallied by between about 2% and nearly 2.75%. Despite the price rally and decline in implied volatility (“vol”) today, US Equity prices remain well below a one-standard deviation move and vol remains at the high end of a one-standard deviation move relative to the last 3 months.
Energy prices at CME were mixed as WTI Crude Oil futures prices rose by about 1% while Natural Gas prices continued to fall, though they rallied from the day’s lowest levels. Even with the over 25% decline since the first week of June, July Natural Gas futures prices continue to trade at higher prices than we’ve seen at this time of year since at least 2011.
US Treasury yields rose according to CME’s Micro Treasury futures contract pricing with the long end rising more than the short end. We currently see the following prices and today’s change in those futures products:
Micro 2-Year Yield: 3.237 (+2.6 basis points)
Micro 5-Year Yield: 3.383 (+4.1 basis points)
Micro 10-Year Yield: 3.310 (+4 basis points)
Micro 30-Year Yield: 3.361 (+5.4 basis points)
As you can see, the curve between 2 Years and 10 Years has steepened (the 10-Year is currently yielding slightly over 7 basis points more than the 2-Year) since it inverted last week though remains very flat between 5 and 30 Years. In the image below, we included QuikStrike graphs of the 25 Delta Risk Reversal (Call Volatility minus Put Volatility) for both the traditional 2 and 10-Year Treasury options at CME. As you can see, the Puts were bid relative to the Calls after the FOMC announcement but the Calls have increased relative to Puts over the last week. However, today, you can see in the 2-Year, the Calls increased while in the 10-Year the Puts increased in volatility relative to the Calls. Remember, these are the traditional US Treasury instruments which are price, not yield, based.
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