May 16. US curve flattening continues…
The trend of curve flattening in the US remains firmly in place. 2/10 down another bp to 150, while red/gold pack spread fell over 3 bps to a new low of 134. Option trades were partially responsible for the move in the euro$ curve. Early in the day there was a buyer of 50k June (red) midcurve 9937p for 7-7.5 (9.5s). Prelim open interest from CME shows volume of only 10k but an open interest drop of 29k…trade appears to be an exit. At same time TYU 132.5 straddle was sold down from 2’53 settle Monday to 2’41 yesterday, taking vol back down below 5%.
–This morning gold is down over $25 with GCM around 1530, near the spike low of the end of last year. Same story with silver. The markets that ran up in the first 3 months of the year, whether due to liquidity or “economic growth prospects” have made a round turn trip. That includes EUR, now around 127, just about where it started the year, having popped up to 135 in the interim. It seems to me that these are important levels to try to find support across many markets, or else face wholesale liquidation.
–As a side note, one of the catalysts, or more appropriately, excuses, for the current turmoil is JPM. Interesting to note that while the stock has dropped 22% from the high in March (46.50 to 36), it still isn’t near the low of last November which was around 28. Given the outsized media coverage of JPM, one might think that vulnerability in one of the strongest global banks would be reflected in higher LIBOR settings? Nope…EDM still holding around 9949.5 and 9950 straddle 5.5/6.0.
–Today’s news includes Housing Starts at 690k, Industrial Prod +0.5 and FOMC minutes.
