Key Takeaways with Craig
Today we’ll take a look back at the US Treasury curve, using CME’s Micro Treasury Yield futures as a proxy. As you can see in the top graph below generated with CME’s Treasury Watch tool, both the Micro 2 (blue line) and 10-Year (orange) Treasury Yield futures declined to near the lows of the year following the market volatility caused by the Silicon Valley Bank failure. Both then rose the highs of the year in mid-October before falling steadily over the last two months, especially recently after Federal Reserve Chairman Jerome Powell’s comments after the last FOMC decision announcement. Also, after reaching a low of 9 basis points at the end of October, the inversion between the Micro 2s and 10s has increased back to about 44 basis points today.
In the options markets, both the 2-Year and 10-Year options are trading below the Year-to-date CVOL averages. The lower graph depicts the skew (in yield terms) of the 2s and 10s. As we wrote about through the year, in July we saw a bit of a divergence in the skew of the shorter maturities vs the longer dated maturities. As you can see, although there is a difference in magnitude, both the 2s and 10s are currently trading with a Put skew, again, in yield terms.
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