Mar 23. Reform GSE’s?

While initial reaction to the passage of the healthcare bill was negative for equities, early weakness was completely erased and stocks closed at their highs.  Yields were also lower on the day with tens falling 2.5 bps to 3.66%.  The curve flattened slightly, with 2/10 notching a new low just below 269 bps.  Treasury kicks off this week’s auctions with the two  year note today, followed by 5’s and 7’s Wed and Thurs. 
–Other news includes Existing Home Sales expected 5.00M from 5.05M.  Geithner testifies before congress on issues relating to FNM/FRE and housing finance in general. (Speech was inadvertantly released early.  He says Treasury is committed to reducing retained portfolios of GSE’s and cites excessive “leverage on leverage” as a culprit.  Many contradictions are apparent; he wants to reduce gov’t guarantees and increase loan availability, but admits private capital isn’t yet up to the task.
–Also interesting with respect to Geithner is that Lehman apparently used the NY Fed (with Geithner at the helm) as a warehouse for toxic paper, though the Fed is only supposed to accept investment grade paper for collateral. (According to the Lehman report/ Huffington Post).
–Big eurodollar option trade set the day’s tone: an exit sale of 50k midcurve Dec EOZ 9700/9725p spread at 6.0 (delta 7ish).  Even though stocks had a strong rally, eurodollar contracts maintained a solid bid, however implied vol was softer.

Posted on March 23, 2010 at 5:15 am by alexmanzara · Permalink
In: Eurodollar Options

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