April 1. April fool’s day joke for bondholders…NFP > 300k
–Yesterday afternoon MN Fed’s Kocherlakota suggested the Fed may need to tighten by 50-75 bps in 2011, sending interest rate contracts immediately lower. We’re going into today’s Employment and ISM reports pretty much at the lows of the last couple of weeks, so it shouldn’t take much of a push to really cause a capitulation of longs. The backdrop doesn’t help: Oil jumped another $2.30 and is near new highs as the MidEast situation offers no quick resolution. Grains are likewise pressing to new highs, with Corn up about 70 cents (over 10%) in the last two sessions! Walmart’s head of US operations says all suppliers are raising prices, and retailers can no longer hold the line; inflation will be much worse in coming months. The rise in rates is going to pressure housing, but the gov’t guarantees 95% of new mortgages at this point anyway, so just add it to the tab. Stocks are oblivious, like the college coed crossing the street while texting and listening to her i-pod.
–Nonfarm payrolls expected 200k. ISM expected 61.2.
–Last week there was a large buyer of TYK 117p at 12 vs 119-20,21. Yesterday those puts were sold down to 7 vs 119-12 (open interest fell nearly 40k). Another big bearish bet from a week or so ago is the buyer of Green April 9700/9725p spreads for 4. We’re now only about 15 bps from the upper strike…EDM3 now around 9840.
