Aug 26. Jax Hole. New curve lows.

Once again the curve made new lows as economic data continues to surprise on the weak side.  Red/gold pack spread settled below 200 bps. 
–Near contracts came under profit taking pressure even as the libor setting edged lower.  Perhaps partially due to Ireland downgrade, also due to large option plays (buying put spreads/selling calls) by Fimat. It was only back in May that that the front end had a 60 bp plunge before making this recent climb back to the 9962 strike.  In comparison, this sell off has been mild, though many of the same domestic and internat’l financial conditions (though papered over with “stress tests”) are still in place as evidenced by Ireland and new highs in Greece/bund spread. Also, CA is back to issuing IOU’s.  The good news yesterday was a report consumer credit is declining and delinquencies falling.  However, some analysts point to increased home payment delinquencies as freeing up cash to pay down cards. 
–It seems to me that the gov’t rescue mechanism has informally taken this form: support the big banks, relax their accounting, lend to them against assets of dubious quality.  The public now understands this, and are giving THEIR underwater leveraged assets back to the banks, both homes and commercial real estate.  The “zero percent” interest solution and fake asset pricing is only officially available to banks, not other economic agents. What eventually might develop is a “US National Rental Agency” to take over this property, as opposed to something like Resolution Trust.  Then the new agency can tout “RENT TO OWN” programs.

Posted on August 26, 2010 at 4:50 am by alexmanzara · Permalink
In: Eurodollar Options

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