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Everyone and their mother still short vol in April, May, and June, probably won't change on that front anytime soon. At this point data is solid, other data soft, talk about inflation hawkish, then dovish, then hawkish again. No one has conviction on either side. Stuck in 4.69% to 4.80% in...

Hold long end shorts, good trade in terms of risk/reward with the curve in 2-10's looking to breakout above the +6 basis point level. A near 20 tick rally in the ten year and the curve can't flatten, that says a lot for the flattening move, maybe hitting the end of it, although lots of dealers...

I'll try not to mess this up, but with the repo squeeze in the two-year note, which has been on special since about mid last week, the two-year remains well bid and thus very tough to short for flatteners because you will have to borrow (repurchase) the note back in the repo market overnight at...

Ya, my bad, was looking at April 107 puts settlement not the June. You are correct they have lost money on the options side but made up for it on the futures side.

Riskarb, Thanks for clarifying that June 107-109 combo vs. 107-10 in the futures. Was bored and looking over that position they are making a killing (to the tune of about a million), volatility got whacked on Friday with the uneventful number and those 107 puts may slowly lose their value...

Zero talk of the port deals and implications in the Treasury markets. Most talk these days is curve steepening and spread widening (swaps, mortgages, agencies vs. Treasuries) along with a pickup in vol, is this a breakout, or just a short-term hiccup.

Speaking of fading the steepener Smith Barney did so as we broke today selling 15,000 TUT spreads (selling twos vs. buying tens at a 1.52 weight). Was a good spot to get a good deal in tens, as lots still feel they are somewhat cheap at 4.80% and ultra-cheap at almost 5.00%

Ya, anytime I mention mortgage stuff its always hedging side, Bank One hedging convexity risk for Countrywide by buying calls and Bear Stearns hedging extension risk for Wells Fargo by buying puts.

Mortgage guys shedding long puts from last Friday, they sold about 40,000 between May 107 and April 106 puts yesterday. Japanese still long their puts in 30yr options though, so maybe some more to go yet. As soon as the mortgage guys unloaded their puts yesterday we traded nothing but higher...

Yes, this low volatility is out of control, but nothing short of a disaster or structural change in long end interest rates is going to change it. Essentially, at this point, it is my belief that say one day the 30yr straddle will close at 1-30 (or any given unusually low number for front month...

The same guys sold 5,000 a piece of the April, May, and June 107 straddles today, they were marking up some previous shorts as they offered this stuff steady for the last hour of the day.

Riskarb, Thank you, so if we sit here and maybe trade back up to 107-20 or so and chop around there for awhile then back to 107-10 they are probably in good shape as 107 vol will get hammered? And when you mean they get "shorter" as time passes are you essentially saying the type of move...

This trade is delta neutral. I'm not sure I follow what you are talking about, way too technical, can you put it in layman's terms. My understanding is that if we sit here or grind a bit higher the puts will get whacked because they were so well bid today and he is long calls that were...

Who ever said bonds were boring? Haha, actually they are, until days like today.

As if it wasn't enough the Japanese buying huge size in the 30yr puts as we broke, we began to stabilize off the lows, as we traded to 107-09 this afternoon Goldman bank traders quoted the June 107-109 combo vs. 107-10.5 in June (a 66 delta on this thing). Boom, they come in during the last...

Japanese are in buying puts in 30yr though, usually precedes a pretty big move. Has bought 10,000 May 109 puts and 5,000 April 110 puts. He is always right getting in but never takes profits and they expire worthless. Probably a cash hedge.

To give an idea of how nothing is priced into interest rate volatility look at April options, which still have a little less than a month to expiration. One can buy the Ten-year April 106-109 strangle for only 8 ticks, and probably will be able to get it cheaper in the coming weeks. Thus, for...

A bank or hedge fund was actually unwinding cash flatteners in 10/30's, on the order of 4 billion by 2 billion, so the futures play was obviously a hedge. Starting to stabilize in 30's as that has run its course.

Tough to call an end to the flattener, Smith Barney has sold 17,000 x 10,000 in the NOB (selling tens to buy thirties). Massive steepening this morning across the curve, but big guys decide to do flatteners into it, very interesting.

If you really want to buy volatility, or play the fact that long-end risk premiums (i.e. 30yr) are incredibly cheap than maybe sell the five year straddle against buying the 30yr straddle. Have seen this done before on a 2:1 basis.