Aug 10.

Aug 10.  Well the Fed succeeded in convincing the market of low rates for a long time (at least yesterday).  Eurodollar calendar spreads were crushed.  One year calendars nearly at zero: Sept11/12 settled 2.5 and Dec 11/12 at only 1 bp.  The commitment to keep rates low until at least mid-2013 almost seems desperate…through the next presidential election cycle…probably why three members of the FOMC dissented. At Bernanke’s last press conference he said he didn’t know how long “extended period” meant, the Fed wanted to leave it open.  Now he knows?  Five year treasury yield closed under 1%.  What’s the purpose?  To save asset markets?  If people can’t refinance mortgages currently due to negative equity or spotty income records, is another 50 bps cut in mort rates going to make much difference?  Is the forced (domestic) push into risky assets going to spur consumption, or create an uneasy and perhaps misguided confidence?  Can the trading partners of the US think this is good?  China and Russia already see US dollar policy as reckless…is this move going to mean dollar assets are shunned?  I personally think this was bad policy, will shortly lead to a steeper curve, and will NOT underpin asset prices. The message is renewed recession, and inability of monetary policy to affect the outcome positively.

–I have never seen straddle settles like yesterday.  EDH2, M2 and U2 9962 straddles are all within 1.5 bps of each other, from 27.5 to 29, but with an added twist of EDH12 at 28.5 closing higher than EDM12 at 27.5. Red/green pack spread at 57 is near last year low of 54.  Jackson Hole conference Aug 25 thru 27 ought to have some fireworks….

Posted on August 10, 2011 at 12:37 pm by alexmanzara · Permalink
In: Eurodollar Options

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