August 29. Rates moving higher more easily than they fall…
–Most of Tuesday’s fixed income rally was reversed yesterday as the treasury auctioned 5’s. In euro$’s there was quite a bit of put buying, mostly exits. Both Brazil and Indonesia raised rates, to 9 and 7% respectively as emerging markets try to stem capital flight. Interesting data from the IMF that emerging economies have overtaken developed: “According to the International Monetary Fund—the supplier of this data—advanced economies will have a purchasing price parity-adjusted GDP of $42.8 trillion in 2013, while that of emerging economies will be $44.4 trillion.” So when the Fed says it doesn’t take emerging market turmoil into consideration, it’s hard to believe. The administration has committed to expanding international influence while the Fed is turning inward? Summers will “fix” that. http://www.huffingtonpost.com/2013/08/28/gdp-poor-countries_n_3830396.html?utm_hp_ref=business
–News today includes Q2 GDP revision and Jobless Claims, expected 330k from 336k. As an aside, while employment data has improved, it’s hard to reconcile with the growing number of homeless panhandlers in Chicago. It used to be that there was one or two guys on the bridge from the train, now there are 4 on each side, morning and afternoon, and on nearly every corner in the loop, young and old, black and white. Not a sign of robust hiring, but perhaps it’s just summer in Chicago? Easily the worst I have ever seen.
–Treasury auction of 7’s this afternoon. Demand has been tepid as tapering looms and developing countries burn through dollar reserves by divesting treasuries.
–While there was buying of relatively near put spreads that were exits, the trade that is being added is buying Blue Oct 9675/9650ps financed with sales of Short(red) Dec 9900/9950 strangle. The Oct put spread is 50 out of money and trades around 4, only 44 days until expiry. Perhaps more of a bet on debt ceiling fight and aggressive tapering than economic resurgence.
