Quotes on the CME Case Shiller home price index contracts were much higher Tuesday morning (Oct 27) after the release of the most recent Case Shiller indices.
As illustrated in the table below, mid-market levels on the 11 Feb 2021 (G21) contract were higher by almost 5 points (on average). The largest gains tended to be in the California contracts (i.e. LAX, SDG and SFR) while CHI, DEN and LAV were the (relatively) weakest.
Of note, most of the increase in mid-market values were the result of much higher offers. Those offers, combined with bids that were only marginally higher, resulted in bid/ask spreads more than doubling (from an average of 4.7 to 9.8 points). While some widening in bid/ask spreads typically takes place after Case Shiller #'s are updated, this time the widening was much more pronounced. The size of index increase, the absence of trading, and the lack of third-party participation (with the exception of some activity in the Nov '20 contracts), all contributed to increased uncertainty (and wider spreads). I hope to work on bringing in these spreads for month-end marks.
That said, I could use some help in bringing in bid/ask spreads in these contracts (particularly the HCI contract), as these contracts serve as the springboard for calendar spreads that drive longer-dated quotes.
There were only two trades yesterday (in Nov '20 contracts).
Please feel free to contact me if you have any questions (or ideas) related to this blog, or any aspect of hedging using home price index derivatives.
Thanks, John