July 11. Midcurve euro$ expiration. Fed semi annual testimony next week
–Curve steepened a little bit as Portugal’s Espirito Santo Bank is a reminder that not all is well with the world. Red/gold euro$ pack spread rebounded 2.75 bps to 213. More pronounced moves occurred in the back end of the Fed Funds curve, with contracts from June’15 to Dec’15 up 5 to 6 bps, partially due to a re-think of tightening given financial strains, and partially because of the Fed’s discussion on changes to base rates. I focus mostly on FFQ15 as I think it gives a pretty clean estimate of the FF target by the middle of next year (or used to). It has been hanging around 50 bp, but yesterday rallied 5.5 to 9957.
–However, there are still plenty of put structures being bought for ‘Fed normalization’, For example, yesterday 25k 0EZ 9900/9875ps bought for 8.0.
–Today is July midcurve expiration. Here are settles in one day straddles:
0EN 9925.0^ 2.5 ref 9925.
2EN 9825.0^ 4.5 ref 9823.5 in U6,
3EN 9737.5^ 5.0 ref 9740 in U7.
4EN 9687.5^ 4.5, ref 9689.
–Fed’s semi-annual testimony to Congress is next week starting Tuesday. Given the new dislocations in the middle east, perhaps it’s also worth noting that the ‘deadline’ for an agreement regarding Iran’s nuclear weapon capability is July 20. No worries, we have Kerry on the case, negotiating in Vienna. Of course, no one bothered to tell him the actual meeting is in Tehran…
–Some interesting stories on ZeroHedge about Chinese (and others) parking their money in luxury condo projects in Manhattan, with many units being left empty. There have been previous articles on a crackdown of capital controls as wealthy Chinese siphon money away from the country. If prices are set at the margin, and the flow of foreign funds to prop up the higher end of the real estate market begins to slow, then prices should begin to ease…
