Key Takeaways with Craig

The major US Equity Indexes traded lower throughout the day and ended down by between .4% and about 1% as the market waits for Congressional votes on the debt ceiling agreement.  As you can see in the QuikStrike graphs below, the market is pricing in a higher implied volatility level in the E-mini S&P 500 and Nasdaq-100 options that expire tomorrow and Friday afternoon than it is in the more deferred expiries.  Somewhat interestingly, the options that expire on Monday, June 5th, the day after Secretary of the Treasury Janet Yellen has said the government will run out of money in the absence of a debt ceiling deal, are not trading at that elevated vol level that the options that expire tomorrow and Friday are. 

CME’s Micro 2-Year Yield futures are trading lower by about 11 basis points while the Micro 10-Year Yield is down by about 7, slightly narrowing that inversion that we talked about yesterday.  Implied volatility, as measured by CVOL, was little changed in CME’s Treasury options markets.  Fed Funds futures prices were active today and this was reflected in CME’s FedWatch tool which now shows a 72.5% chance of NO change to the Fed Funds target at the June meeting.  Just yesterday, the tool reflected a ~67% chance of a 25 basis point hike to the Fed Funds target rate.  We included a “bonus” image from the FedWatch tool below that shows the volatility we’ve seen in the Fed Funds futures as the market tries to assess the probability of a rate hike in June.

Today's Future Price Action

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