This is the inaugural CA Digest.  There are currently four sections:
  • Main Essay – on a topic I find interesting that week.
  • Delayed Market Comments – a few bullets from a weekly Newsletter that can be between 4 and 10+ pages.
  • Summary of Trade Sections – I can’t discuss active trades, but I can mention some updates.
  • Forum Update – a summary of major posts that week.
Let me know how to make this Digest more useful to you.

CA Global Expansion:

I’ve wanted to look at non-USD STIR futures for some time now, but it never looked like another central bank was going to active enough.  We may be on the brink of a series of moves from a central bank other than the Fed, which would give us a curve that could have a tradeable shape.  For now, I want to add the STIR futures from the time zones closest to me – Canadian BA futures, Euribor futures and Short Sterling futures…

For today, I just wanted to do a very basic assessment where the various markets are in terms of their relative hiking cycles.  To do this, I took a look at where the various year spreads and 6mo flies were for each STIR market:   CLICK TO READ THE REST OF THIS ARTICLE FROM THE CA WEB SITE

Next Week: I discuss the noticeable change in pricing the past month between the quarterly and non-quarterly FOMC meetings.

Other Delayed Market Comments from the CA Newsletter:

Interesting Fact: The prior three years have seen notable fixed income buying in January (and late December).  And it looks like 2017 makes 4 in a row!

Interesting Comment: I would imagine if I were a bear that believed in the recovery, I would probably be short reds and greens versus possibly a long further out.  If I were a bull, I would probably buy the longer end for carry.  Let’s keep this market positioning theory in mind as we look for new Q1 trades.

From the Value on the Curve Section: The curvature in the front Euribor futures is too flat.  Hikes should be more biased towards 2018 than 2017.  Any ease risk should be biased towards 2017.  This is a good look at both a bullish and bearish tail.

From the News Takeaways SectionThe year-end turn pricing was strange.  The cash 3 month libor fixing barely moved over the past week and FF futures barely moved over the past week.  So one would have thought the ED-FF spreads for the first few contracts would have been unchanged.  However, ED-FF spreads came in about 2.5bps!  We had been saying that the risk to the ED-FF spread was lower after the Treasury’s new money fund rules in October.  Not much had happened in the ED-FF spread for 2.5 months and we finally got a large move over year-end.  It will be interesting to see if the narrowing of the ED-FF spread continues, or if this was a seasonal(?) market positioning for a year-end turn that was taken off.

Trade Summary from the Delayed CA Newsletter:

FLIP TRADE UPDATE: We whiffed on the timing of Buying EDH7 vs FFJ7 (and/or FFK7) as a spread narrowing trade on Wednesday Dec 28 (since the year-end turn rolls off on Dec 29).  A day earlier and this would have been a good 2 day trade.  But I added two new Flip Trades: a double fly trade and a non-quarterly meeting trade.

OFFICIAL TRADE UPDATE: We added our first Trade in Euribor, but unfortunately, it moved away.  But I discussed a new trade carry/reflation that I wanted to add.

Look for some sample trades from previous quarters later this quarter.

Forum Update:

My New Year’s resolution is to write some new content for the Web Site “more regularly.”  You may be seeing my writings appear in some unexpected places later in the year.  The most notable posts from the Forum were:

My thoughts on risk reversal options structures, and when they can be useful.  One of my former managers would say “if you want to buy a risk reversal, you might as well just go long” (or vice versa). To some extent this is true. Your mark-to-market on the options structure is going to be somewhat close to just owning a smaller amount of the underlying futures on a small move. But there are cases where doing a risk reversal could make sense.  CLICK TO READ THE REST OF THE POST ON THE CA FORUM

My answer to Viewer Mail on when looking at charts of generic structures (i.e. ED1-ED5-ED9 fly) or actual structures (i.e. EDH7-H8-H9 fly) can be most useful. The generic and actual charts are easily accessible, and those also contain very useful information. CLICK TO READ THE REST OF THE POST ON THE CA FORUM

Let me know if you have any feedback on the format or content.
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