Aug 25. Plunge in existing home sales drives yields to new lows

Aug 25.  Existing Home sales plummeted, an easily identifiable culprit for large market moves across the world. Ten year note below 2.5%  All euro$ calendar spreads made new lows as deferred contracts gravitate towards zero rates.  2/10 treasury spread fell around 9 bps to new recent low of 202, same level as red/gold pack spread, which fell over 11 bps.
–The very front end of the curve however, traded lower.  The very economic strife that is causing treasuries to seek lower yields is also likely to enhance financial stress and lead to a “credit crunch” in near contracts.  EDZ0 fell 4.5 bps to 9958.5, having traded 9964 early.  A reflection of this dynamic is S&P downgrade of Ireland.  There is also a piece on ZeroHedge that details how the Illinois Teachers Retirement fund had embraced derivatives in order to boost returns (more risk equals more return, right?) and is now in severe trouble.  The new school year will feature bake sales to meet margin calls, a valuable extra curricular lesson for the tots.   
–Surge in the yen is spurring the Nikkei to make new lows, down another 1.6% this morning. Gold and silver, which well lower yesterday morning staged very strong rallies.  Stocks fell after home sales and never really recovered.  Saw a guy on CNBC who said total equity value a few years ago was $60 trillion, now only $40T, so things are “cheap”.  But homebuyers aren’t so sure that a 30% cut is necessarily cheap.

Posted on August 25, 2010 at 4:28 am by alexmanzara · Permalink
In: Eurodollar Options

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