Key Takeaways with Craig

As expected, the FOMC raised its Fed Funds Target Rate by 75 basis points today. Initially, the Equity market rallied but fell as Fed Chairman Jerome Powell spoke and ultimately closed sharply lower.  Despite Powell’s comments that inflation is still too high and signaling further interest rate hikes, CME’s FedWatch tool shows a higher probability of a 50 basis point hike at the December meeting than yesterday and a lower probability of a 75 basis point hike.

US Treasury yields from 5 to 30 years was near unchanged while the Micro 2-Year Yield futures was up by over 5.5 basis points.  With this move, the inversion of the 2s versus 10s rose above 50 basis points again according to the Micro Yield futures. 

One of the features in CME’s CVOL tool is that it not only provides volatility information on specific products, but also calculates an aggregate volatility for related products, such as Treasuries.  Using Dollar Vega weighted methodology, the Treasury CVOL index takes into account the volatility from all four tenors (2, 5, 10 and 30 year).  As you can see in the intra-day CVOL graph below, the blue line shows that overall volatility fell after the FOMC number was released while the skew on Treasury yield shifted toward the Calls.

The market will now be looking toward Friday’s release of the Department of Labor Employment number for October and, of course, next Tuesday’s mid-term elections in the United States. 

Today's Future Price Action

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