April 22. Steepeners unwinding

April 22.  Curve flattened further yesterday, with 2/10 treasury spread down 5 bps to 273.5.  Red/gold pack spread was down 6.5 bps to 261.  EDZ10/EDZ11 spread, the largest one year calendar spread, fell 4.5 bps to a new low of 139.  One year spreads that average around 125 to 130 are not indicative of a market looking for aggressive tightening.
–There was an article in today’s Financial Times (I just saw the headline) “US treasury issuance set to turn lower”.  Also, Obama said something about a VAT tax for the US.  In a general sense, it looks like US fiscal policy is set to be less expansionary going forward, in an environment where the “hand-off” to the private sector is still bobbling.  Taxes are going up, bond sales have probably peaked.  Many measures to forestall foreclosures have run their course. Buyers tax credits for homes are about to expire.  Financial regulation may, at the margin, cause capital restraint.
–News today includes PPI expected +0.4% with Core +0.1%.  Jobless claims, which have been surprisingly high the past two weeks are expected 460k.  Existing Home Sales expected 5.25m.
–May ten year options expire Friday.  TYM appears to want to peg either 117 or 117.5 strike…there was good size trade yesterday in 117.5 strike.

Posted on April 22, 2010 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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