Sept 19. To paraphrase Al Haig, BB: I’m in charge here…
–I can’t help thinking of the old beer commercials… I can see Bernanke lifting his stein in a mock toast, “Here’s to you Mister I’ll sell short Dec strangles and buy blue put spreads…”
When the Fed indicated they wanted to “push back” against perceptions of tightening, they weren’t kidding. Lack of taper caught the market by surprise. All near eurodollar calendar spreads plunged to recent lows. Ten year yield fell 15 bps to just under 2.70. 2/10 fell over 10 bps to 237, while 5/30 posted a new recent high of 232, up 9, as 5 yrs led the yield collapse, down 18 to 143 (still double the low yield of 70). I would note that while open interest in tens and bonds rose, OI fell 16k in Fives and 142k in euro$, primarily in the first two years. EDZ14 had traded as low as 9914 earlier this month prior to employment data, settled 9944 yesterday as rate hikes are swept off the table.
–I guess the Fed’s motivation was not to allow the market to box them into decisions, but even with recent mixed economic data I think it was a lost opportunity and the market will test the resolve of the new Fed soon enough.
–On the other hand, housing which had been a big component of the recovery, has been restrained by higher rates. For example, a friend that went to work at Wells Fargo in new home loans in January was just laid off along with 5000 others due to “market conditions” (thanks PD).
–Precious metals and stocks exploded higher, and pressure on EM was further alleviated. From BBG…”Bernanke Buys Time for Brazil to India as Rupee Leads Rally” And while most welcome the rise in stocks (which perhaps solidifies Yellen’s chairmanship), the fact that people are simply paying more for a given dollar amount of sluggish earnings is of concern for the longer term. But that’s a problem for the next Fed…
–News today includes Jobless Claims expected 341k, Existing Home Sales 5.25m, Philly Fed 10.0 and LEI +0.5.
