The only thing that has changed is one of your biggest players in the tens, prop guy from JP Morgan appears to be long a boatload of Dec this time around, he was the one short a ton of June last time, ended up costing Morgan their quarter in terms of earnings. I would put him long 50,000+ in Dec, around 110-20, little lower. He has wanted to be short interest rates for awhile and had to throw in the towel last time, if he's long I wouldn't try to get short too much. Not to mention Gross' long position, Goldman really the only one selling this on the way up, has been selling Dec today. Has been a good strategy, sell into rallies pre non-farm payrolls, and slowly cover into the FOMC meetings as we rally most times after. In my opinion, the economy is slowing and Fed may have to start easing in a year or two and this strategy may not work anymore. I hope someone argues otherwise.
Hey mcurto- do you think we will see a significant move up in 10yr/30yr implied vols. before Friday's shortened trading day? It seems like the options usually get more expensive a couple of days before NFP.
No bid in either 10 or 30 yr implied vols as of yet, 30year vol was bid slightly on the rally today. Paper has been trying to sell vol in the 10's, a bunch of Nov 112 straddles sold last week, 10,000 or so total. I think everyone has been settling for the labor market steadily growing for awhile now, but if productivity is starting a longer-term downtrend then maybe job growth really needs to pick up and start surprising to the upside.
Ebo, Sorry didn't get to this earlier. Definitely a firesale in the long end of the curve today. In terms of paper, it was mostly Goldman buying earlier in the day, way up at 113-22 and 113-23, about 5000 between pit and screen (obviously mostly screen). That is correct up near the highs of the day. Locals sold these highs in size. The 10-year also traded almost 25,000 from 13.5 up to 18 for the high of the day, Goldman buying those as well. Locals seemed to have maintained shorts all day and were finally able to push it into some MASSIVE 10-year stops starting around 109-10 to the lows of 04. The stops in the bond began around 113-15, and then a Japanese account bought 10,000 Dec 110 puts so option locals had to sell 2000 futures or so as we were breaking. I hate to say it, but just seems like futures locals won the pushing match today in the long end. Didn't see any yield curve spreads from Goldman or anyone for that matter (UBS doing a small FOB steepener), so can't really attribute it to guys trying to put on steepeners in size. I think maybe guys are just bailing from the flattening trade and no one wants to provide a solid bid in the long end while they do this, not to mention there are size paper sellers into EVERY rally after unemployment as of late, makes it a tough case to own the long end, along with tough Fedspeak has most people very scared. Lot of funds like Pimco, etc., seem to see better value in short end at these levels (hence a 15% direct bid in today's five-year auction, somebody put in a really competitive bid because they wanted to get in on short end U.S. paper).
Some kind of a HUGE stop order got elected it feels like! Look at the light volume on the bottom. My other semi-educated guess is REFCO positions may have gotten upchucked with a market order by some genius.
Decent amount of weak shorts covering this morning in the long end, locals were long small into the number, but reversed on the highs for size. Paper joined them and started crushing tens about halfway off of the highs, settled in for awhile, then Hardy Brumfield really started pushing early afternoon, he started selling 108-30's in the pit, then kept pushing, about 5000 traded 29 to 28.5 on the screen, then he sold 28's (took out two size bids at once in the pit), but found some paper bids around 23, decent value area technically I guess, and we traded back higher almost just as soon as we had dropped, had to be quick to pull the trigger and take profits on those shorts. In last half hour though had a strange order in the 10-year, was 30 bid 2000 (nothing out of the ordinary), and all of a sudden trades almost 7000 times up to 31.5 on a spike. Interesting times, either way keep bringing back this volatility.
thanks again mcurto very very interesting. yes, there's a notes resistance level near 108-23 but the bounce was not as noticeable as in the bonds. it's still a bounce so lets see what hapens tonight/tomorrow.
mcurto: Just touching base, we miss your color! What was the nature of that little sell off? I have to assume it is related to 5 YEAR TIPS demand at the auction. best, ebo