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Lost Opportunity

US TSYS

Lost opportunity for short end tactical traders or risk hedgers absent or sidelined late Wednesday when short end rates gapped lower. Lead quarterly EDU2 futures gapped lower, well past earlier CPI session lows to 96.34 (-34.5) after Atlanta Fed Bostic comments of "concerning" CPI while, "everything is in play" the Fed is "not wedded to any specific course of Fed action".

  • Chances of a 100bp rate hike at the end of the month jumped from single digits to close to 75% after the move. Note, Fed goes into media blackout at midnight Friday -- going to hear more pop-up comments from Fed speakers by then.
  • Participation grew thin in the second half after traders contended with heavy selling on higher than expected June CPI data as markets locked in expectations of a 75bps hike at month end. Yield curves hit 16+ year inverted lows as bonds rebounded, traded higher by midmorning. Option trade was largely mixed on call and put position unwinds followed by better 10Y call buying around midday.
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