Key Takeaways with Craig

Another extraordinary day greeted the second week of March as the financial markets continue to weigh the potential impact of the failure of a large US bank.  US Treasury yields, particularly at the short end of the yield curve moved dramatically lower.  The Micro 2-Year Treasury Yield futures fell by nearly 50 basis points (bps), the Micro 5-Year by just over 50 bps, while the Micro 10-Year Yield future fell by about 12.5 bps.  The Micro 2-Year Yield is pictured in the upper left graph below and, as you can see, it has fallen nearly 100 basis points in the last few trading sessions.  The magnitude by which the 2-Year and 10-Year are inverted fell significantly, as you can see in the upper right hand graph below.  Last Wednesday, the Micro 2-Year was yielding about 100 bps more than the 10-Year; today, that difference is approaching 50 bps.  Finally, the lower two graphs illustrate the Treasury options action using CVOL data.  In both the 2-Year and 10-Year Yield options, implied volatility (CVOL) spiked higher (lower left), while the Puts were bid dramatically over the Calls today (lower right). 

In addition to all the action in CME’s Treasury markets, the Fed Funds futures were active as well.  The FedWatch tool is now suggesting a near 0 probability of a 50 basis point cut and is actually now pricing in a 34% chance of the Fed holding its target rate steady at the March 22nd meeting. 

Perhaps unsurprising, given this move in rates, many of CME’s asset classes were volatile today.  US Equity Indexes traded back and forth all day, ultimately finishing mixed on the day.  Implied volatility in CME’s Equity Options markets continued to move higher, but not with the velocity we saw in the Treasury options today. 

Other notable moves today included:

  • WTI Crude Oil futures prices down another 2.2% to under $75 per barrel
  • Natural Gas prices up by nearly 7%
  • Gold futures prices up by over 2.5%; Silver up by nearly 6.5%
  • With the decline in US Yields, the US Dollar was lower versus most major currencies in CME’s FX markets.
Today's Future Price Action

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