Aug 12.

Aug 12.  Bad 30-year bond auction sent the yield up nearly 1/4% to 3.78% from 3.54.  The eurodollar curve was also influenced as red/gold pack spread gained over 7.5 bps, with golds down 6.875bps.  While the Fed just pledged to keep rates low through mid-2013, it seems like the market is trying to determine exactly where on the curve it should begin to steepen aggressively.  All near one-year calendars are going lower, for example Dec11/12 was down 4 to -8.5.  EDH12/13 settled at 1 bp (new low) while EDH13/14 settled 63, so right now the market accepts the Fed’s power to control the next year and a half with regard to short rates.  Two year treasury yield was nearly unchanged while tens shot up 19 to 2.33.

–In eurodollar options, EDM13 9950 straddle settled only 53.5.  With 1 3/4 years to go, the 9950p are only 28.5 bps! (EDM3 99.465s).  I am willing to bet against the Fed on that particular pricing…

–There were a few large exit trades, 20k TYU 130/132 c spreads sold.  Both E2Z and E2H 9875/9900/9925 c flies were sold 50k, at 3.5 and 3.0 respectively.  All closing positions.

–Stocks rallied hard.  France, Spain, Italy are imposing rules against short selling in an effort to save their banks.

–The US Post Office says it needs to cut about 120k jobs to stem its losses, but will need legislative help because of union opposition.  Perfect case study…a gov’t service whose original mission has been made nearly obselete by new technologies.  Should it be heavily subsidized by taxpayers?

Posted on August 12, 2011 at 12:38 pm by alexmanzara · Permalink
In: Eurodollar Options

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