Key Takeaways with Craig
US Equity prices were resilient for most of the day after the CPI number that was released this morning indicated higher than expected inflation, but an afternoon sell-off led to losses in all four major US Indexes. Implied volatility in CME’s E-mini S&P 500 options ticked higher while that in the E-mini Nasdaq-100 options was down slightly.
US Treasury yields traded higher today with the Micro 10-Year Yield futures up by about 10.5 basis points and the Micro 30-Year up by about 12. The Micro 2-Year Yield was up by about 6 basis points, bringing that magnitude of that inversion to about 31 basis points. Remember, CME’s Micro Treasury Yield futures have a static basis point value of $10, so if a trader wanted to assume a position based on the yield curve shape between 2 and 10 Years, they could execute that spread position on a 1:1 basis. For example, as you can see in the graph below which depicts the Micro 10-Year Yield minus the Micro 2-Year Yield, on September 29th, the spread was -47.4 basis points. If a trader, at that time, had a view that the difference was going to narrow, they could have bought the bought an equal number of contracts of the Micro 10-Year Yield and sold the Micro 2-Year Yield futures contract. Today, the spread between the two contracts is about -30 basis points. Therefore, had a trader made this trade, their hypothetical P&L would be +$174 (17.4 basis points *$10/bps).
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