Aug 10. FOMC today. QE expected

Aug 10.  FOMC today. The market is expecting an announcement for QE. There have been a reasonable amount of trades predicated on further easing of very short term rates, which could lead to disappointment unwind. 
–The curve flattened further with 2/10 spread at a new recent low of 228.  Red pack to deferred pack spreads made new lows as well.  Red/green edged to 73.5, another 2 bps lower.
–Treasury trade was biased toward put buying.
–It’s worth noting that at the last FOMC on June 23 the first two eurodollar contracts were around 9940 as opposed to current 9960.  Ten year note was around 3.15% as opposed to current 2.82%.   One might argue that the market has already eased for the Fed and that its job is simply to catch up and legitimize market rates. 
–San Francisco Fed: “A Recessionary Relapse Is A Significant Possibility Sometime In The Next Two Years” (from ZH).  Concern about a second half swoon is growing.  Paul Krugman ran an op-ed piece lamenting cutbacks at state and local levels, and the attendant economic drag. 
–Fannie and Freddie are both requesting more taxpayer assistance ($3.3 bln) due to large losses.  Sort of a stealth stimulus program as fresh loans are made at favorable rates.

Posted on August 10, 2010 at 4:31 am by alexmanzara · Permalink
In: Eurodollar Options

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