Russell 2000 Rebounds as Yields Pullback; Quad Witching Looms

Also, 30-year T-bond, silver, natural gas and Japanese yen futures

1. Russell 2000 E-mini futures (/RTY): +0.13% 

2. 30-year T-bond futures (/ZB): +0.31% 

3. Silver futures (/SI): -1.98% 

4. Natural gas futures (/NG): -0.62% 

5. Japanese yen futures (/6J): -0.11% 

U.S. equity futures are mixed as bond yields pull back and a ‘Quad Witching’ Friday gets underway. Some $5.1 trillion in notional options exposure will expire, split into an AM settlement of $3.1 trillion and a PM settlement of $2 trillion. Approximately $280 billion of SPY options will expire today, as will $870 billion of single stock options. Elsewhere, ongoing strength in crude oil prices continues to weigh on the Japanese yen (/6JU4), which is on the cusp of setting a fresh closing low for 2024. 

U.S. equity futures were mixed this morning, with Russell 2000 contracts (/RTYU4) rising 0.16% to lead the pack. Today marks a triple witching—meaning options on equities, indexes and futures will expire, which can lead to increased volatility. The notional value of those combined options is above $5 trillion.  

Treasuries are up across the curve, following the move in Europe overnight when traders bought up bonds after purchasing managers’ index (PMI) readings showed further slowing across the Eurozone. The 30-year T-Bond futures (/ZBU4) were up 0.55%, as the underlying yield hovers near the lowest levels traded since March.  Yesterday’s five-year TIPS (Treasury inflation protected security) showed a high yield of 2.050% and bid-cover ratio of 2.52. Indirect demand was especially strong, indicating foreign investors remain keen on U.S. debt.  

Silver (/SIN4) is giving back some of yesterday’s gains, dropping about 1.85% this morning. Traders piled into the metal yesterday, driving prices over 4% higher in the second biggest daily gain for June. Despite that advance, silver prices remain lower on the month, tracking a loss of about 0.5% with only one week of trading left until July.  

Natural gas futures (/NGN4) were slightly lower ahead of the New York open and the commodity is on track to record a loss of around 5% for the week—the biggest weekly loss since early March. However, prices remain higher in June, which would mark the third month of gains if the trend holds. An inventory report from the Energy Information Administration—normally due out on Thursday—is set to cross the wires today, which will help inform traders about the supply situation as more heat is set to blanket the United States, potentially driving demand higher in the coming weeks.  

The Japanese yen (/6JU4) continues to decline, dropping 0.11%, despite inflation data that showed prices increased in Japan last month. That data added to bets that the Bank of Japan will increase interest rates, but it hasn’t offered any help to the yen. While the decline brings the threat of intervention back into the fold, it hasn’t dissuaded traders from shorting the currency. The U.S. Treasury added Japan to a monitoring list for currency manipulators this week but also said that it saw no evidence that any major trading partner has directly intervened in its currency markets.  

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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