Bond rally nearing an end?

Quote from mcurto:

Surprisingly 107 volatility was only bid by about .10% in Feb so they really didn't get hit too hard today. I think they sold however many futures up around 29 to 27.5 to hedge out that gamma (but probably didn't plan on a move this huge today). They sold about 50,000 March 106 puts vs. futures today around a 3.90% vol, which should be a new position (will have to take a look at open interest tomorrow).
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It looks like OI on the Mar 106p did not move very much on a net basis. But I assume that convexity hedging was also active as 4.85 was taken out.
 
Yes John. Goldman was actually long around 10,000 on that strike from an old position probably why open interest wasn't up by 50,000. Also had about 20,000 trade outright in the pit from different houses. Flows were so huge in that strike yesterday with 160,000 total trading. I am pretty sure Goldman is short that strike around 30,000. Short those Feb 107 here and as we uptick he is looking pretty good. This could be fun if we print above 106-20 to 21 area.
 
Hi guys.

Mcurto, if i understood, you said Goldman is short on 107 puts, is it right?
These options expire next week is it?

Thanks, good weekend for all.
 
They were short the Feb 107 straddle (puts and calls) for the last 3 or 4 weeks. They almost were looking very good as we started trading 106-19 as they had bought back most of their short futures hedges around 106-10 or so in the morning (a guess but lots of volume there). My guess is the position wasn't a big loser because they were short the straddle when it had much more premium in it. Their new position from yesterday was the March 106 put vs. futures that they sold. This is definitely a critical turning point for the market and we probably won't consolidate at this level. It is either back up toward 108 in the 10yr or breakout out way below 106 to maybe 104 area.
 
Another reason why this could possibly be a turning point in bonds is the action in the Euro. The last couple of weeks the dollar has moved towards EUR1.285-1.29, but has been met with strong selling that seems to evaporate pretty quickly. It feels like there are huge stops/options down there. If you look at a chart, you can see over the last 3 years that the 1.28 area is very significant for both bulls and bears.

It would not be good for bonds to see a stronger dollar this year as it would probably help the consumer but hurt corporate balance sheets. Also if an investor wanted to swap out of treasuries and into bunds, the lower bund yield might not be so bad if you can get short dollars in the 1.20-1.25 range.
 
Goldman hit today's move right on the money with their short March 106 puts vs. futures from basically a 4.10% vol level. On the close today vol at 3.85% or so. I thought maybe they would have bought back their short futures somewhere around 106-10 to 15 as we have traded there for at least the last few days and managed to hold the bottom of the range. Then they would essentially have paid for their scale into the short puts and have a free look to a rally over the next month or so back toward the upper end of the range. Their longer term June vol position is primarily short the 107 strike around 20,000 thus far. Still lots of data to go this week but other accounts aren't expecting a meaningful breakout and have sold the March 106-107 strangle in good size (at least 15,000 between different houses) both outright and vs. futures today around 106-20.
 
March 106-107 strangle is looking pretty good (worth 23 and they sold 30's and 29's in BIG size) after today's massive failure to make a breakout either way.
 
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