June 2. Yields continue to press lower.

June 3. Nonfarm payrolls today.  Expectations have been cut by several firms in light of other weak data; a number around 140-150k now seems to be in the ballpark. Given lowered expectations and the strong rally we have already had in fixed income, a move to much lower rates doesn’t seem likely.  However, recent stock market jitters and renewed scrutiny of financial firms will put a floor under bonds.

–In news yesterday:  Groupon prepares for IPO. Goldman Subpoenaed Over Senate Report (leading to further weakness in financials).  And from BBG:  Moody’s Investors Service said it will put the U.S. government’s Aaa credit rating under review for a downgrade unless there’s progress on increasing the debt limit by mid-July.  It’s somewhat ironic that as ratings agencies have cut various country debt ratings, the IMF, (which gets 17% of funding from the US), recommends austerity measures.  Yet in the US, austerity typically means slowing the pace of increase of gov’t programs.  And the US itself can’t seem to find agreement on any meaningful true cuts.  In the short term, reduced gov’t means less growth.

 

June 2.  Yields continue to press lower.  Two year now at only 44 bps…in late 2008 it had gotten to 68 before bouncing.  The lowest level in Oct 2010 was 33-34 bps.  Ten year now solidly below 3% at 2.97.  ADP was weak.  ISM weaker than expected.  Today’s news includes Jobless Claims expected at 420k.

–All near eurodollar one year calendars made new lows.  No one-yr spread is above 100 bps.  Dec/Dec down another 6.5 to 64.5.  Red Dec/Grn Dec was sold Tuesday at 100.5 on block trade; yesterday another block of 5k sold at 94.

–Stocks slid as the specter of economic weakness overwhelms the benefits of constant liquidity.  Just a few days ago the Linked In IPO was being hailed as a sign of strength in the tech market, yesterday it fell 5% to 77.45…about 35% below the high print.

–Eurodollar vol was hit, but bond vol was bid.  Suggests further flattening as the front end of the curve approaches the zero boundary, while the back end is perceived as having room to run.  Another Moody’s downgrade of Greece, which represents even odds of default, is another factor helping to drive treasuries higher.

–Interesting story on Reuters that China is absorbing some of the bad debts of local governments and forcing banks to take some losses.  Just a  matter of time before the US does the same, (without banks taking any hit, however)…  (Reuters) – China’s regulators plan to shift 2-3 trillion yuan ($308-463 billion) of debt off local governments, sources said, reducing the risk of a wave of defaults that would threaten the stability of the world’s second-biggest economy.

http://www.reuters.com/article/2011/05/31/us-china-economy-debt-idUSTRE74U26320110531

Posted on June 2, 2011 at 12:17 pm by alexmanzara · Permalink
In: Eurodollar Options

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