August 6. US curve steepens, signals caution for treasuries

–At first glance employment data was stronger than expected (NFP 163k vs 100), though revisions and an increase in the rate to 8.3% suggest a mixed picture. In any case, for the second Friday in a row, rates jumped, with tens closing 1.57%, right around the level from the previous Friday. However, this session indicates more weakness to come as the curve steepened to new recent highs, with red/gold up 11 bps to 130 and 2/10 treasury spread up 7 to 133. So even though tens barely made a new recent high in yield, red gold was 130 this Friday as compared to 121 on previous Friday 27-July. US rates are shifting to bearish sentiment. Stocks made new highs and the euro soared. Looks like EUR/JPY has bottomed. Crude had a nice run up. For whatever reason, many markets appear to be technically reversing. Even the Shanghai Comp is showing some signs of life. I had been thinking that tens would revisit 1.42 but now I think any rally close to 1.50 should be sold. I don’t know what the catalyst should be for higher rates. Maybe just too many longs. Maybe the bund leads everything lower…perhaps the auctions this week (3’s, 10’s, 30’s) won’t have a welcome reception, (in an otherwise quiet economic news week). In saying that he would focus on the short end, Draghi invited the market to steepen the curve.
–Geopolitical fireworks surrounding Syria could still cause a bout of flight to quality buying, but the market trades long.

Posted on August 4, 2012 at 2:39 pm by alexmanzara · Permalink
In: Eurodollar Options

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