Key Takeaways with Craig
The FOMC kept its Fed Funds target rate steady at the conclusion of their meeting today, but also suggested there might be one more rate hike this year. Interestingly, CME’s FedWatch tool still suggests a 54.9% likelihood that the target rate remains at its currently level after the last meeting of the year in December. US Equity index prices wound up lower on the day with the Nasdaq leading losses, down by over 1%. Somewhat unsurprisingly, implied volatility in CME’s Equity Index options rose today with the E-mini S&P 500 30-day at the money volatility trading above its 3 month average and the Nasdaq-100 trading at the 3 month average.
US Treasury yields at the short end of the curve rose with the Micro 2-Year Yield future up by about 5 basis points while the more deferred maturities were near steady on the day. In the Treasury options markets, CVOL levels fell in all four tenors while the skew in the 2-Year (again in yield terms) fell again. As we talked about yesterday, this indicates that the volatility in the Puts was higher relative to the Calls than it was yesterday, despite the increase in yields. In fact, the skew in the 2-Year Treasury options is as low as its been since the end of May.
In other CME markets, WTI Crude Oil futures prices were down by about 1.25% and are again trading under $90 per barrel while the US Dollar rallied from previous losses versus other major currencies in CME’s FX futures markets to end up near steady.
We used CME FedWatch data to create the graph below that shows the historical probability of different Fed Funds target rates. As you can see in the red line, the current target range (525-550), still remains over 50% while the gray line, which represents a 25 basis point hike in December, is at about 38%.
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