March 10. Spain downgraded; peripheral bond yields rising

–US Ten year note fell below 3.5% to 3.47 even as news circulated that Pimco’s Total Return Fund had been purged of all treasuries.  New lows set in many one year eurodollar calendar spreads, for example EDZ11/EDZ12 fell 6 bps to 126.5. EDM1/EDM2 fell to 81 bps as the market lessens the odds of rate hikes any time soon. Big trade of the day was a seller of about 18k EDH12 99.375 straddles at 52 to 51. (Settled 51.0, -2.5 on day).  Same player as above also sold EDH12 9912^ in size of 6k.  Both are opening positions…deja vu for the option pit as EDU1 9937^’s were pasted in size a few months ago, starting at 45 bps.
–Spain was downgraded by Moody’s as it is set to reveal capital needs of the savings banks (cajas) of around 20b.  Peripheral bond yields keep rising, putting a circular strain on sovereign finances.
–China reported a trade deficit of $7.3b with exports up only 2.4%.  Perhaps that’s why Baltic Dry Freight rates remain low? Also, from Calculated Risk blog:  The Ceridian-UCLA Pulse of Commerce Index™ (PCI), issued Wednesday by the UCLA Anderson School of Management and Ceridian Corporation fell 1.5% on a seasonally and workday adjusted basis in February, after falling 0.3% in January.
–Transportation is the lifeblood of the economy…if prices and volumes are lackluster, then weaker economic data is likely going forward.
–ZeroHedge reports US naval resources are massing near Tripoli as the prospect of a no-fly zone draws closer.

Posted on March 10, 2011 at 4:44 am by alexmanzara · Permalink
In: Eurodollar Options

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