Aug 11. Another day of wild price action (and prices)…

Aug 11.  Another day of wild price action (and prices).  Many near eurodollar spreads have now gone negative.  Even EDZ11/EDZ12 has inverted to -4.5, with Dec’11 99.525 and Dec’12 9957.0.  Some people are scratching their heads as EDM2 100c trade 0.5, while euroswiss contracts have blown through the zero bound and trade 100.10 to 100.16.  Switzerland now considering a euro peg (that ought to kill it).  Flows of money searching for safety have poured into swissy and gold; the latter trading over $1800 yesterday.  Financial stocks took another big hit with Citi, BofA, GS and Morg Stanley all down around 10% as rumors swirled about Soc Gen.

–Three month libor settings have been fairly stable in spite of all the turmoil, yet EDU11 99.625 straddle still trades 15/15.5.  As back months have rallied, at-the-money straddles have collapsed, and if I marked the settle correctly, E2U 99.375 straddle settled at only 22.5.  Greens can move 10 bps any given day, and there’s a month left on Sept midcurves.  I think that straddle spread is an absolute MUST DO at 7 (sell front), or just buy green and scalp. Perhaps the Fed can successfully anchor the front end, but greens can whip around like a mad cat’s tail.

–With scared money looking for a home and worried about paper assets of all types, it’s only a matter of time before that money goes back into THINGS, and perhaps the small rebound in crude oil is an omen.  I’m sure Bernanke is trying to re-work the “our actions help equity markets and your 401K’s, but in NO WAY contribute to higher commodity prices, which are driven specifically by Brazilians and those other guys that live in the Fiji Islands” speech.

–30 year auction today.  Job Claims continue to flirt with 400k, expected 405.  Trade deficit expected 48.0B (as Baltic Dry Freight Index scrapes along the bottom).

Posted on August 11, 2011 at 12:37 pm by alexmanzara · Permalink
In: Eurodollar Options

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