June 8.

June 8.  Treasuries were well bid going into the three year auction, and the strength continued into the close.  Bernanke’s speech caused new highs (on the day) in TYU to 123-165. The first headline I saw concerning Bernanke’s remarks was that central bank accommodation is still needed.  A downbeat assessment of the economy took stocks lower, with ESM falling to a new low, from around 1290 to 1282.50.  Goldman suggested central bank inaction after the speech, harkening back to the “Seven Faces of Peril” paper put out by Bullard last year that warns of an impotent central bank at very low (zero) short term rates. [this paper recommended higher FF with more bond buying] http://research.stlouisfed.org/econ/bullard/pdf/SevenFacesFinalJul28.pdf

–Today’s news includes ten year auction and Beige Book.

–Red/gold pack spread moved to a new recent high in front of longer maturity auctions, up a little over 1 bp to 280.5.  New lows in near calendars again. Dec/Dec now only 58.5, down 2.5 on the day.

–There were a couple of 30k block trades on NYSE-Liffe yesterday…one early in EDU2 9922.5, and one late (after floor close) in EDU1 9966.5.  Doesn’t appear to be migration from CME open interest, but difficult to say.

–Also a rare trade in blue midcurve options.  Buyer of 4k E3M 9750c (EDU4 underlying) vs Sell E2U 9850c (EDU3 underlying) for 1 bp.  Difference between strikes 100 bps. On its own this trade would suggest flattening.

Posted on June 8, 2011 at 12:15 pm by alexmanzara · Permalink
In: Eurodollar Options

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