July 11.
July 11. Incredibly bad employment report sent yield plunging, with tens back down to 3.01% (-14 bps) in spite of this week’s upcoming auctions in 3’s, tens, bonds (T, W, Th). There was size selling of TYU puts Friday after the data: 20k 119p, 25k 120p and 20k 122p…looks like exits, open int -13k, -7200, -6300.
–Bernanke’s semiannual testimony before Congress begins Wednesday. FOMC minutes on Tuesday.
–In spite of what appears to have been a market caught leaning the entirely wrong way (in interest rates), open interest in eurodollar and all treasury futures had increases according to prelims. For example EDZ12 OI rose 38k and EDU13 was up 21k.
–Stocks were lower on the day, but had a nice bounce from the lowest levels and still haven’t breached lows set on the surprise Portugal downgrade. However, the ECB has set an emergency meeting for Monday to try to contain spillover contagion to Italy. Focus this week will continue to be european problems and debt ceiling/budget negotiations in the US. China could also have an impact, as inflation was higher than expected, +6.4% in June, and the trade surplus grew as import growth slowed.
–While a lot of recent data has been soft, I have a hard time believing it is as bad as Friday’s report suggests. For now the financial landscape remains fragile.
