Key Takeaways with Craig

After a quieter beginning to the week yesterday, today was anything but, as Equity prices fell and the 2-Year Treasury yield rose after Fed Chairman Jerome Powell’s testimony to the US Senate.  All four major US indexes were down by over 1% with the Dow Jones Industrials leading the losses.  The Micro 2-Year Treasury Yield future was up another 11 basis points, which widened the inversion with the Micro 10-Year to nearly 100 basis points, as the Micro 10-Year was near steady on the day.  Unsurprisingly, implied volatility in CME’s Equity Index and Treasury options rose today, but the skew in the 2-Year and 10-Year yields diverged.  The purple line in each graph below depicts the skew and the blue line, the CVOL level in the 10-Year yield (top graph) and 2-Year yield (bottom graph).  As you can see, overall implied volatility in both tenors increased with today’s action; however, in the 10-Year, the Puts were bid over the Calls whereas the Calls were higher versus Puts in the 2-Year. 

Perhaps correlated with the increase in yields, the US Dollar was higher versus most major currencies in CME’s FX futures markets.  Specifically,

  • Aussie Dollar was down nearly 2%
  • Canadian Dollar, Swiss Franc and Euro FX were down by about 1%
  • British Pound was down by about 1.6%

CME’s Metals markets were active as well with Gold futures prices down by about 2%, Silver down by 4.6% and Platinum down by 4.5%.  The aggregate CVOL level was little changed on the day but the Puts are trading as high relative to the Calls as they have in at least 3 months.  

Finally, CME's FedWatch tool now shows a 70% probability for a 50 basis point hike to the Fed Funds Target Rate and 30% for a 25 basis point hike.  Yesterday, it reflected the inverse of that.  

Today's Future Price Action

Traders Resources

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