USTs! Why oh why???
2 days ago, I suggested potentially why oh why. Levered up hedge funds flight from meme, or non-direct holders / mere observers of meme.
not a new phenomenon (in context of meme trading history)
Controversial, I know.
“Separately,” yesterday, I also highlighted AMC $40P for expiry today. Indeed jul9 AMC $40P‘s (specifically) we’re the 6th most traded options contract among all US single stocks, behind 5 of AAPL’s listed options contracts. Also behind AAPL, AMC options were the second most traded overall, with 1.17 million contracts and nearly $5.5bn notional in AMC vol traded. Stock halted its 4 consecutive day -25% decline to close the day +6.37% on 145mn shares (vs 80mn 5d avg).
Back to UST yields - whats with the yield reversal midday US hours yesterday?
(Note the trading volumes relative to the non-volume displayed asset price action)
I’ve personally played in the AMC vol playground in late May-start of June, recognizing the tens-hundreds of billions in crypto sell off flows will be flowing (back) into meme OTM calls (very much like they flowed OUT of meme vol and into crypto in Feb), and also recognizing the listed options exchanges who are eager to list the next series of WAY OTM strikes, knowing the furthest OTM will see an immediate rush of funds in. AMC June monthly $40C at avg $0.98, sold at avg $16.40 over the following week and unloading as high as $24 - what I watched was crypto and AMC meme peers. This week, I went long ZNU1 calls (calls on CME 10y UST futures), and used AMC (or AMC vol) as my guiding indicator on directional cues for treasuries. After taking principal off the table and letting house money run, this below was my (only) indicator I needed to see to completely close out of UST upside bets ↓
Shortly thereafter, 10y yields followed upwards. May be ”right for the wrong reasons“ and will have to autopsy it - but for now it seems that anyone who sold USTs midday yesterday but completely blind of AMC are the ones who are ”right for the wrong reasons.”
Treasury traders: Watch AMC. It costs you nothing to be aware of as many possible and material factors, and can/will cost you a LOT to be unaware.
I really hate having to do the following “disclaimer” (reminder of the incredibly obvious), but I really really truly hate having to explain in response after the inevitable “pushback“ comes - so:
Markets are made up of many different participants, each with their own respective amounts of capital, portfolio compositions, investment objectives, motives, time horizons, risk tolerances, risk exposures , regulatory regimes, transaction costs, transaction abilities, and (here’s the big one) information, knowledge, awareness, biases and outlooks. As such: there is NEVER just ONE (or 2 or 20 or more) reasons for markets to behave the way they do, and explanations for their behaviors. The bigger and more diverse the participant base, the wider the array of price drivers. The US Treasury market is among the largest in the world, with market participants ranging from price incentive, non-economic actors with unlimited firepower (NY Fed), to foreign governments, to individuals to levered speculators.
So, when I point out a POSSIBLE market driver, by no means am I saying ”this is the ONLY driver / factor / reason behind XYZ‘s movement” (nor have I ever, nor will I ever). Why do I have to make this stupid statement? Because very often when I put a thought out there on market drivers (which I exclusively only do so when said driver is missed/overlooked by consensus and therefore by nature “controversial“ or differentiated), I inevitably I have to spend my time copy/pasting the above obvious fact disclaimer in response to “opposition“ (as if I drew a made up chart by hand - like, no, these charted out price movements actually happened/is happening in real life market history), rather than discussing the non consensus point itself. So - yes, I’m aware of like… open vs reopen, inflation expectations & breakevens, Fed…. and stuff that people move USTs on. But when headlines are just “why why why, don’t understand why” - here’s a potential ”because.”