Euro$ interest rate options: a large package Euro$ interest rate options: a large package included the sale of 20k in Short March 87/90 call spreads and Green October 72/73 put spreads for Green October 82 calls. There was also a bullish sale of 10k in March 96 puts and bearish purchase of 5k in Green March 71/73 put spreads vs sale of 81 calls. Underlying euro$ futures have resumed their slide, which began in earnest after the jump in Q2 GDP yesterday and was compounded by fimer ECI today. The September contract is flat at 99.76, but the deferreds are 1-8 ticks lower.
U.S. employment cost index surged 0.7% in Q2 U.S. employment cost index surged 0.7% in Q2 after a 0.3% gain in Q1. Wages and salaries increased 0.6%, versus the prior 0.3%. Both of those Q2 gains were the largest since Q3 2008. Benefit costs climbed 1.0% versus Q1's 0.4%. Overall, wage gains have been modest for the past several years, thanks to the weakness in the labor market, and that's been a problem for the FOMC. The surge in ECI and pick up in wages will add to the markets' fears of Fed rate hikes sooner than priced in.
Fed funds opened at 0.06% as the month comes to a close Fed funds opened at 0.06% as the month comes to a close. Yesterday's rate ranged from 0.05% to 0.3125% with a 0.09% effective. Look for an increase in volatility on month-end. The current 3-year note trades with the lowest rate in the repo market at -0.60% following this week's supply.