Treasuries Are Looking Flat These Days
Treasuries Are Looking Flat These Days
Three-month U.S. Treasuries have nearly the same yields as 30-year versions
Below you’ll see a snapshot of Treasuries along with the different qualities of corporate bonds.
Lower-quality bonds have higher yields to maturity, but that’s nothing new.
What’s unusual, however, is how flat the Treasuries are. Notice how the three-month U.S. Treasuries have nearly the same yields as the longer duration 30-year U.S. Treasuries.
The graphic below shows how these yields have become more flat. A few months ago, the shorter duration three-month yields were 5.5%, whereas the longer 30-year yields were closer to 4%.
Why’s this occurring ? It has everything to do with the Federal Reserve and the cut of 50-basis point in the fed funds rate. This affects the short end of the curve the most.
Skew in options
Looking at options skew makes for an interesting trade. Depending on the amount of skew on either the put or call skew can help determine strategy. Call skew means call credit spreads can be slightly overpriced.
Microstrategy (MSTR) is a good example of call skew.
We can also see Call skew in commodities such as gold (GLD):
SPY (S&P 500 ETF) is how a typical skew looks.
Notice the puts farther out-of-the-money (OTM) are slightly more expensive than the calls. That’s what typically happens when investors buy options because of crash protection demands.
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Michael Rechenthin, Ph.D., (aka “Dr. Data”), managing director of research and development, has 25 years of trading and markets experience. He’s best known for his weekly Cherry Picks newsletter. On Thursdays, he appears on Trades from the Research Team LIVE.
Nick Battista, tastylive director of market intelligence, has a decade of trading experience. He appears Monday-Friday on Options Trading Concepts Live. On Wednesdays, he co-hosts Johnny Trades. @tradernickybat
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