April 11. KPMG uses the ‘Fed leak’ defense: “See? everone’s doin’ it”

–Yields went higher as the treasury auctioned 10’s, and leaked Fed minutes indicated growing momentum for the idea of pulling back on QE this year.  The curve steepened with 2/10 up 5.5 to 140.5.  (Maybe the KPMG guy can just use the Fed leak defense: “it was all just a big unintentional mistake…sorry…all good now, right?”)
–On the eurodollar curve, the red pack (2nd yr) to green pack (3rd) spread is 34 bps.  But the green to blue (3rd to 4th) is 57 bps, a loose indication that tightening expectations are centered somewhere in 2016.  And indeed there was some decent buying of blue June midcurve put spreads yesterday (9875/9850 for 4.0, new).  On the other hand, there has also been concerted selling of straddles; they’ve been taking 0.5 to 1 bp out of Blue Sept 9875 straddle every day, settled at 36 yesterday vs 39.5 last Thursday.  So at a rate of 0.5 bp a day, with 156 days until expiration (~110 business days), we should hit zero around the middle of July! (and maybe then have enough movement to scalp gamma and make some premium back). I guess my point is, and it’s not backed up by study, is that blue premium is a bit cheap relative to green, especially given the shape of the curve.  Just the roll up from EDU16 should be worth something like 16 bps…
–Lagarde was on CNBC saying the US should try to get its budget in better shape, yet the Post Office was denied the ability to stop Saturday mail delivery (and save $2b/yr) by Congress.  Obama budget doa.
–Stocks soared to new highs, but bitcoin took a dramatic tumble of some 40%.  Not to draw parallels but speculative blow ups CAN occur; stocks are making new highs with lower stochastics> bearish divergence.  USD/JPY also made a new high yesterday, but I think it will stall around these levels.  Nikkei should also stall, it is now nearing 62% retrace from 2007 high to 2009 low…
–Jobless Claims expected 365k and treasury auctions 30 yr today.

Posted on April 11, 2013 at 5:49 am by alexmanzara · Permalink
In: Eurodollar Options

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