Oct 7. Long liquidation in red eurodollars over?
–Yields eased yesterday with US tens down 2 bps to 242. Red/green eurodollar pack spread made a new low of 93.25, also down 2 bps on the day. While some commentators continue to look for aggressive tightening, one-yr calendar spreads below 100 bps suggest differently. Interesting piece from JPM on ZH saying QE has made “made private non-bank investors very overweight credit.” The implication is that the forced move into higher yields could result in a nasty unwind. We’ve just seen a small example of potential carnage in HYG and JNK. Sell to who?
http://www.zerohedge.com/news/2014-10-06/chart-day-why-every-corporate-bond-manager-freaking-out
–Not much change in open interest in red euro$’s yesterday, indicating that relentless long liquidation has abated. There was a large short cover buyer of 50k EDH5 9975c for 1.75 and also a new early buyer of 40k Green Dec 9800/9825 call spreads for 6.0.
–Overnight weakness in equities as German data continues to disappoint. Weak Factory orders Monday were followed by today’s release of the worst Industrial Production in 4 years, -4.0%. Ebola fears are spreading.
–On a more anecdotal note, Samsung profits plunged due to weak smartphone sales (WSJ). GT Tech fell 90% yesterday as AAPL didn’t use the company’s sapphire screen technology. Has the smartphone business crested? AAPL has, for the last month, stayed in a tight range completely within the high and low set on April 9 when the company rolled out the iPhone 6 and iWatch. The low of that day is just above 96. A break of that level could have broader equity market ramifications.
