At-a-Glance
Key Takeaways with Craig
US Equity prices fell and Treasury yields shot higher after the CPI release showed a stronger-than-expected rate of domestic inflation in the US. Specifically, CME’s 2-Year Yield Treasury future was nearly 22 basis points higher and the 10-Year was about 18.5 bps higher in late afternoon trading. In the equity markets, the Dow, S&P 500 and Nasdaq-100 were all down by about 1%, while the small-cap Russell 2000 index fell by nearly 3%.
CME’s Fed Funds futures market reacted to the inflation report as well, in a move that was reflected in CME’s FedWatch tool. That tool suggests that the likelihood of a cut to the Fed Funds target rate at the June meeting declined from about 57% yesterday to about 17% today, while the probability that there would be a cut to the target by the July meeting fell to about 41% from about 75% yesterday.
None of this was lost on CME’s options markets either. The graphs on the left side of the image below depict the skew in CME’s 10-Year Treasury options, G5 currencies and the E-mini S&P 500 options, from top to bottom (we used the 25 delta risk reversal as a proxy for skew in the S&P 500 options). The right side of the graph shows CVOL for the Treasury and G5 currency options and implied volatility for the E-mini S&P 500 options.
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