10-year Treasury yield falls below 2.1% for first time since 2017

Jun 3, 2019

Observations & Insight

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Lead Stories

10-year Treasury yield falls below 2.1% for first time since 2017
Pan Kwan Yuk – Financial Times (SUBSCRIPTION)
Treasury yields added to their steep decline from May, with the benchmark 10-year note falling below the 2.10 per cent mark for the first time since September 2017 as President Donald Trump’s tariff threat against Mexico further rattled investors who are already on edge over renewed US-Chinese trade tensions.
/jlne.ws/2Kqq1r5

****JB: From the article, “Underscoring the uncertainty sparked by the escalating trade war, bond volatility surged to an over two-year high on Friday. The Merrill Lynch Option Volatility Estimate (Move), a widely-watched measure of expected price swings in US Treasuries over the coming month, jumped to just below 73, its highest since April 2017 and two months after hitting a record low in March.” Also see this short CME podcast – Treasury Options Skews.

`Mindless’ Bond Rally Spreads Fresh Fear and Loathing in Markets
Cecile Gutscher and Anchalee Worrachate – Bloomberg (SUBSCRIPTION)
To Chris Rupkey, global markets have handed the keys to a wild driver — one that keeps veering the bulls in risk assets off course.
“It’s just a mindless bond market rally — once it gets going, it gets going,” the chief financial economist at MUFG Union Bank said in a recent interview with Bloomberg TV. “I don’t know who’s trading these markets. It doesn’t feel like it’s trading completely logically here.”
/jlne.ws/2Igf88y

Could Bitcoin Hit $50,000? In Wild World of Crypto Options, Some Say Yes
Alexander Osipovich – WSJ (SUBSCRIPTION)
As bitcoin has rebounded from wintertime lows, some traders in an obscure corner of the cryptocurrency markets are betting it could jump as high as $50,000 – more than double its record during the bitcoin mania of 2017.
/jlne.ws/2Kq2RkO

Trading Technologies expands access to Chinese derivatives markets; CN First’s clients based outside of China will gain access to Chinese derivatives markets via Trading Technologies’ software.
Hayley McDowell – The Trade
Trading Technologies (TT) has teamed up with a futures broker based in Hong Kong to expand access to major Chinese derivatives markets to investors based outside of China through its trading platform.
/jlne.ws/2ENXpnW

Oil Teeters on Edge of Bear Market as Saudis Try to Calm Market
Alex Nussbaum and Grant Smith – Bloomberg (SUBSCRIPTION)
Oil flirted with bear-market territory as Saudi Arabia insisted OPEC will avert a global supply glut after international trade brinkmanship triggered the steepest monthly slump this year.
Futures gained as much as 2.1% in New York on Monday before surrendering those gains and extending the decline to a fourth session. Saudi Energy Minister Khalid Al-Falih said Monday that recent volatility is “unwarranted” and predicted allied crude producers will continue efforts to avoid an oversupply for the rest of 2019.
/jlne.ws/2Kq17rt

Bacon Demand Is Higher Than Ever as Price Volatility Grows
Bruce Blythe – CME Group
Ask Chicago butcher Bill Begale to name his top-growing products in recent years, and you get a quick answer.
“Bacon, bacon, bacon,” said Begale, who runs Paulina Market, a popular meat retailer on the city’s North Side. “It’s a big thing for us. You can do anything with bacon.”
Demand has been so strong over the past five years that Paulina Market expanded its bacon offerings beyond its standard, pork-based varieties, Begale said. The store also sells English bacon, lamb bacon, veal bacon and beef bacon. Paulina Market even experimented with “bacon soup,” he said.
/jlne.ws/2MotrgE

****SD: If they put English bacon on the list, might as well include Canadian bacon…

One of the market’s great technical stock analysts folds up his newsletter charts
Mark Hulbert – MarketWatch
It’s rare on Wall Street for a technical analyst’s core insight to be confirmed by a Nobel-prize-winning economist. The far more common situation is for academics to deny that technical analysis has any value whatsoever — and for technicians to return the favor.
Not with John Bollinger, the well-known technical analyst and creator of the technical analysis tool known as Bollinger Bands. Now is a good time to review his contributions to investment analysis, as in May Bollinger tweeted to subscribers that “After 33 years, 396 issues and roughly 1,700 hotlines I published my last advisory letter… You’ve been good traveling companions, thanks for your company along the way.”
/jlne.ws/2KnsWkh

Exchanges and Clearing

It’s about time: G20 to discuss market fragmentation
Walt Lukken – MarketVoice
One of FIA’s top concerns in the policy arena is the growing fragmentation of markets. We have warned for many years that this trend will reduce liquidity, especially in markets that depend on crossborder flows, and harm the resiliency of clearing. At long last, it appears that our concerns are being heard at the highest levels of the official sector.
/jlne.ws/2IklKmf

London Stock Exchange buys data provider Beyond Ratings in ESG push
Reuters
London Stock Exchange Group Plc said on Monday it acquired data provider Beyond Ratings, as the exchange operator bulks up its Information Services business to meet a growing demand for environmental, social and governance (ESG) products.
/jlne.ws/2Mtxt7w

****SD: Not options, but indicative of the growing interest in ESG.

Nasdaq Announces Changes to Reports on PHLX, NOM and BX Options Markets
Nasdaq
The current reports available for Nasdaq PHLX (PHLX), The Nasdaq Options Market (NOM), and Nasdaq BX (BX Options) will be changing. PHLX, NOM, and BX Options will begin using the report format currently available for Nasdaq ISE (ISE), Nasdaq GEMX (GEMX), and Nasdaq MRX (MRX) in addition to newly introduced reports. Below is a description of the changes clients can expect.
/jlne.ws/2Igbdc0

ROFEX Finished May With A Historic Record In Dollar Futures And Options – May Ended With A Dollar Futures Operation Record
Mondovisione
This month, the dollar futures and options have registered their greatest activity level, consolidating themselves in their segment 17 years after their creation in May 2002. ROFEX finished May with a historic record in dollar futures and options, with a total of 26,696,817 contracts, equivalent to almost 27 billion traded dollars. These figures result in a volume rise of 24.7%, in comparison with the last historic record, registered in March 2019, when over 21 million contracts were traded. Meanwhile, the rise was of 28% in comparison with May last year, when there were over 20 million contracts.
/jlne.ws/2JUJZe1

Technology

Using AI to spot potential rogue traders
Financial Times (VIDEO)
Rogue traders can cost banks billions. Now some are using artificial intelligence programmes to flag suspicious behaviour, looking at everything from how traders phrase their emails to the times they use their computers. AI is also getting better at avoiding time-consuming false alarms, meaning banks’ compliance teams don’t become bogged down with vast amounts of data.
/jlne.ws/2EPiQFo

Strategy

Comparing Vertical Option Spread and Trading Underlying with a Stop
Russell Rhoads – TABB Forum
Many futures traders use stop orders to limit losses when the market is not moving as they hoped. However, there are times when an option on futures order offers a similar risk-reward scenario without some of the uncertainty that exists with stop orders. TABB Group head of derivatives research Russell Rhoads examines the use of options on oil futures contracts as an alternative to trading the underlying futures contracts.
/jlne.ws/2Kixokd

Funds forced out of their bearish corn bets by record slow U.S. planting
Karen Braun – Reuters
Record-slow corn planting in the United States has caused speculators to quickly erase their massive short bets in Chicago-traded corn, and they likely closed out last month with a bullish stance on the yellow grain.
/jlne.ws/2IeCU4R

Maneuver These Market Land Mines with Options
Todd Salamone – Schaeffer’s Investment Research
In last week’s commentary, I explained that increased hedging activity related to growing concerns about the impact of deteriorating trade talks with China could set the stage for a big move in the coming weeks. The reasoning was that hedging activity, specifically put buying on SPDR S&P 500 ETF (SPY – 275.27) options, set up a situation in which huge SPY put open interest had built up at strikes down to the $245 level on the SPY, which equates to about $2,450 on the S&P 500 Index (SPX – 2,752.06).
/jlne.ws/2Z2QKOr

Bitcoin traders searching for “gaps” on various exchanges and the Cboe
Mariela Naydenova – LeapRate
An old axiom that often proves to be true when trading financial markets is that “Gaps will be filled”. Gaps occur when prices suddenly gyrate to a higher or lower level, without setting any particular levels of support or resistance. Depending on the type of gap, there is a high probability that market prices will return to previous price points, thus “filling the gap”. Bitcoin has been rocketing off the charts of late, forming “gaps galore”, as one trader described it. For traders that follow such things, the “galore” term can also apply to opportunities for gain, if you are familiar with how to play the gaps.
/jlne.ws/2MrZk8f

Miscellaneous

Investors Could Tip the U.S. Economy Against Themselves
Mohamed A. El-Erian – Bloomberg
Investors’ call on the U.S. economy may now be the single most important one to get right, and for a reason that goes beyond the fact that it’s the largest economy in the world with the most liquid financial markets. And it’s a call that also may well depend on what they do.
What happens to the U.S. economy will determine whether the recent selloff in global stocks, driven by global growth concerns, extends into a notable correction. The strength of the U.S. economy will decide whether the world will continue to see divergence among advanced countries that limits market volatility or will see the deepening economic weakness elsewhere deteriorate into a truly synchronized global slowdown.
/jlne.ws/2KokG3F

Libor’s End Forces Global Banks to Juggle Multiple Replacements
Alex Harris – Bloomberg (SUBSCRIPTION)
For the world’s biggest financial firms, getting ready for the end of one multi trillion-dollar global reference rate is a monumental undertaking. Getting ready for the end of half-a-dozen? Some would call that impossible.
Yet that’s what many market participants are facing as Libor’s demise approaches. The decision to phase out the scandal-tainted set of benchmarks by the end of 2021 is forcing regulators around the world to simultaneously push ahead with their own domestic funding-rate alternatives.
/jlne.ws/2Id3UBM

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