At-a-Glance
Key Takeaways with Craig
What a difference a day makes! After yesterday’s broad-based rally, US Equity Indexes sold off today, with the Russell 2000 leading losses, off by about 3%, while the Nasdaq-100 was down by about 2.5%. Somewhat predicably, implied volatility in CME’s Equity Index options spiked today and, in fact, is as high as it’s been since the volatility induced by the Silicon Valley Bank failure in March, 2023 in the E-mini Nasdaq-100 options.
US Treasury yields declined sharply with CME’s 2-Year Treasury Yield future falling by nearly 19 basis points to about 4.07% while the 10-Year fell by about 12 basis point to under 4% for the first time since February of this year. Also, the inversion between the 2s and 10s has fallen to about 10.5 basis points. Additionally, CME’s FedWatch tool is now reflecting a 25% probability of a 50 basis point cut to the Fed Funds target range at the September meeting.
This price volatility wasn’t lost on the Treasury options market either. The two CVOL graphs below show a spike in CVOL (blue line) and decline in Skew, in yield terms (purple line), in CMEs’ 2-Year (top) and 10-Year (bottom) options. The graph on the right shows an increase in the convexity value for both of those options markets as well, which, remember, is an increase in the volatility in the out of the money options relative to the at-the-money.
In other markets, Gold futures were up by less than 1% and most major currencies were lower versus the US Dollar. CVOL in both of those options markets increased.
So, even though we’re supposed to be in the “dog days” of summer, there’s a lot going on in the financial and commodity markets and we still have tomorrow’s July Employment Situation report before the week is over! Have a great evening and we’ll see you tomorrow.
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