Key Takeaways with Craig
US Equity prices bounced back today as US Treasury yields fell sharply in a reversal from what we’ve seen in recent weeks. CME Equity Index futures prices were lower overnight and yields were higher until news that the Bank of England would begin a bond buying program hit the wire. CME’s Micro Treasury Yields fell approximately as follows:
- 2-Year: -23 basis points
- 5-Year: -26 basis points
- 10-Year: -26 basis points
- 30-Year: -15.5 basis points
As you can see, it was generally (except the 30-Year) a parallel shift downward and the 2s versus 10s inversion remains just below 40 basis points. However, prior to the announcement from the BoE, the Micro 10-Year Yield had topped 4%.
As we pointed out yesterday, implied volatility in CME’s Treasury options are historically high and, even though they came down a bit today, at 10.4% for options that have 30 days until expiration, remain extraordinarily high. We didn’t focus on it yesterday, but the skew in the Treasury options remains solidly towards the Puts. As you can see from the QuikStrike graph of the Risk Reversal (Call Volatility minus Put Volatility) in the 10-Year options below, the Puts are trading substantially higher relative to the Calls versus the last few months. And remember, those are Puts on contracts based on the price of the Treasuries which moves inversely to yield.
In CME’s commodity markets, WTI Crude Oil futures prices were higher by about 2%, Metals were mostly higher and Wheat futures were up by about 3.5%.
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