Nov 12. Rates poised to move higher
–Quiet session yesterday though underlying concerns about tapering prospects were reflected by several spreads. For example, red/gold euro$ pack spread edged to a new high of 285, up slightly more than 2 bps. According to futures, 2/10 also made a slight new high, I estimate 244.5. Implied vol was slightly firmer in tens. Bloomberg notes an increase in vol associated with risks of higher rates. http://www.bloomberg.com/news/2013-11-12/volatility-seen-in-treasuries-as-traders-brace-for-higher-yields.html
I would expect to see more interest in blue and gold euro$ midcurve puts…
–The dollar is stronger this morning, especially against the pound and yen. UK inflation was less than forecast at only 2.2% yoy, GBP looks like it has put in a broad based top.
–While the Nikkei is higher as the yen falls, emerging markets are turning lower. After having made new lows in late June/early July and then rallying strongly, Brazil, Korea, India, China all have shown weakness in the past two weeks, perhaps another indication that a withdrawal of liquidity due to US tapering is seen as a looming risk. (Forced deflation from Japan’s devaluation campaign is another factor).
–News today includes NFIB small business optimism, expected 93.3. Chicago Fed Nat’l Activity was +0.14 last, the first plus in six months, is also released today. Three year auction.
–Fitch downgraded Chicago yesterday due to pension problems. (AP) “Fitch dropped the rating from AA- to A- on $8 billion in general obligation bonds, backed by property taxes.”
