Key Takeaways with Craig
US Equities traded mixed to begin the last week in March, with the Dow Jones Industrials and S&P 500 higher and Nasdaq prices declining. In the options markets, implied volatility (“vol”) in the E-mini S&P 500 options declined while it was nearly unchanged on the day in the Nasdaq-100 options. US Treasury yields were active again today with the Micro 2-Year Yield future up by over 22 basis points (“bps”) and the Micro 10-Year Yield up by about 16 bps. According to CVOL, vol in the Treasury options came down from 2-Years through 30-Years, but remains elevated relative to historical levels. As you can see in the CVOL graph below, the skew in the 2-Year and 10-Year yields diverged today. In the 10-Year yield, the Calls were bid over the Puts today while the opposite was true in the 2-Year yield.
CME Energy markets were also active today as WTI Crude Oil futures prices were up by over 5% and Natural Gas prices were down by about 5.25%. CVOL levels in Nat Gas options rose with today’s price break and is trading near 2 month highs, while in the WTI Crude Oil options, CVOL continued to decline. Finally, Gold prices were down by about 1% today and volatility in the options markets remains elevated relative to the last 3 months.
Along with the increase in short term treasury yields, CME’s Fed Funds markets were also active; a move that was reflected in the FedWatch tool. That tool shows a 45% probability for a 25 basis point hike to the Fed Funds target rate at the May 3rd meeting; up from just 17% on Friday. The probability for no change at that same meeting correspondingly declined from about 83% to 55%. Also, on Friday, the FedWatch tool reflected a 25% chance that we’d see a 25 basis point CUT by the June 14th meeting; today, that was down to an 8% chance.
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