Quotes on the CME Case Shiller home price index futures surged after this morning's CS index updates. As detailed in the table below, the Feb 2022 (G22) contracts rose by 3.4-5.7 points (as measured by mid-market to mid-market) from yesterday's levels. CHI and DEN were the laggards while MIA and NYM were up the most. Large upward revisions to last month's levels in NYM (+1.29) and SFO (+1.07) contributed to strong index gains.
This is one of the largest reactions to an index release that I can recall (since May 2012), and as such, bid/ask spreads have widened from an average of 3.5 points to 6.0. While I try to narrow bid/ask spreads for month-ends (as this will be a year-end), in the absence of third party participation, I don't see quotes narrowing to last month's levels for a while.
There was one trade in HCIX22 of two lots today.
The index gains translated in 2-3 point gains in the front contract (not shown) and bigger gains in the Aug and Nov 2021 contracts. Activity that will drive settlement values for the front/ Feb '21 contract will end at December month-end, so I'd be surprised to see any further large moves there. However the Aug and Nov 2021 contracts may remain volatile as the combination of past momentum and the prospects for a vaccinated population, low interest rates, and low inventory, may fuel a continued rise in prices. Another way to say that is that the front curve might steepen.
Prices on longer dated contracts (e.g. G24-G26) only show modest (~1%) year-on-year gains as most buying interest seems to be in the 2021 contracts. (Note that all bids -the blue x's -are above yesterday's closes -the purple line. Closes are tallied at 3 PM today. I expect higher closes on almost every contract today).
Please feel free to contact me if you have any questions about this blog, if you have any trading ideas, or would like more information on the use of home price index derivatives as a hedge.
If I don't blog the rest of this week, a Happy, Healthy New Year to all.
John