Key Takeaways with Craig
US Equity prices struggled to find a clear direction for most of the trading day, but a late day rally led to a mixed close. The Nasdaq was up by about .5%, the S&P 500 and Russell 2000 were near steady and the Dow Jones Industrials were down slightly on the day. The Micro 2-Year Treasury yield futures was up another 4 basis points while the Micro 10-Year was unchanged on the day. This led to an inversion between the two of almost exactly 100 basis points. This is the deepest the inversion has been since the 2-Year Yield surpassed that of the 10-Year in July of last year, as you can see in the top graph below.
Yesterday, we noted that the skew diverged in the 2-Year versus the 10-Year treasury options. Today, we saw the CVOL level of the 2-Year Treasury yield continue higher, while that of the 10-Year fell just slightly. CME’s FedWatch tool is now pricing in a 78% probability of a 50 basis point rate hike at the March 22nd meeting; up from just 30% a few days ago.
CME Foreign Currency and Metals futures market price moves were fairly muted today, though Energy markets remained active. WTI Crude Oil futures prices were down another nearly 1.5% and Natural Gas was down about 3.4%. The CVOL levels in both of those energy options markets came down slightly.
Finally, Friday morning brings us the February Employment Situation report which will provide the latest read on the health of the US jobs market. As you can see in the lower graph below that depicts the volatility curve in CME’s E-mini Nasdaq-100 market, the equity options market seems to be pricing in the market moving potential of that report, as the options that expire on Friday are trading at a volatility well above the surrounding expiries.
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