Aug 11. Peace dividend?

–Stocks posted an outside reversal higher Friday, after trading heavy volume at new lows during european hours.  Treasuries held up fairly well despite the rebound in stocks, but still closed near lows of the day.  Not much change in the curve.  Red/green euro$ pack spread closed exactly at 100; peak one year spread is still EDZ5/Z6 at 104.5.
–Implied vol firms as treasuries rally.  Last Tuesday I marked atm TYV 124.5^ at 1’41 or 4.4.  With stocks pressured later in the week, straddles went bid. TYV 125^ settled 1’50 on Friday, 5.0 vol.  Even with the bounce in SP’s premium in fixed income held up.
–This week brings auctions of 3, 10 and 30 yr treasuries.  Retail Sales on Wednesday is probably the biggest economic report.
–So far, bombing raids in Iraq don’t seem to be having much of a market impact.  But doesn’t US military capability seem stretched a bit thin?  There’s Iraq/Syria, Russia/Ukraine, and unrest in the China Sea.  If there was a defense “peace dividend’, it has surely vanished.  Even at the local level, the State of Illinois has agreed to assign State Troopers to help the Chicago Police Dept handle increased crime. With attempts to redraw borders across the world, the US becomes a safe haven for capital flows, but it’s probably an error to mistake these flows for underlying confidence in economic fundamentals.  Risk has increased globally, the US is likely just the last place for it to really show.

Posted on August 11, 2014 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply