Key Takeaways with Craig
Despite an inflation reading that suggests continued levels of historic inflation, it was lighter than expected which led to a sharp rally in US Equity prices. Implied volatility (“vol”) in CME’s Equity Index options declined on the news and is trading near 6-month lows. The skew in E-mini S&P 500 options shifted toward the Calls as you can see in the QuikStrike graph of the 25 Delta Risk Reversal below. The graph simply shows the vol in the 25 Delta Calls minus that of the Puts so it reflects that Calls are trading as high relative to Puts as they have in the last 6 months.
US Treasury yields reacted in a bit of a steepening moves though, even at the short end, yields were trading well above earlier low levels. According to CME’s Micro Treasury Yield futures contracts, the 2-Year Yield was down by about 5.5 basis points, the 10-Year Yield was near steady and the 30-Year Yield rose by about 4 basis points. The 2s vs 10s inversions is currently at about 42.5 basis points.
In other CME markets, WTI Crude Oil and Natural Gas futures prices were higher by about 1.5% and 5% respectively and most major currencies were higher versus the US Dollar, perhaps correlated with lower rate expectations.
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