Wednesday, February 18, 2015
Treasury Traders Get 'Pumped-Up' for FOMC Minutes
A smaller decline in Eurodollar open interest (o.i.) and large open interest jump in Treasuries o.i. was the result of trade on Tuesday. That session saw prices fall fairly hard following a week of consolidating ending with Friday’s modest advance into the long weekend.
The consolidation last week was not sufficient to distract from the bearish implications of the outsized decline of Friday Feb 6th employment report session. As earlier noted, that ‘employment’ session open to close decline was as large as or larger than any for a while in most contracts and was the largest in the fifth quarterly Eurodollar contract since January 2011.
We saw some follow through in lower fixed income prices overnight. There is room for further weakness in front of the FOMC minutes, but would consider the adjustment yesterday as reducing the risk for an additional outsized decline before the minutes are seen. However, should those minutes give rise to the belief the Fed will lift the fed funds policy rate in June, there is room across the curve for further weakness.