Aug 27. Equity market cult as yields drop and curves flatten

–Ten year yield unchanged yesterday at 239 though the 30 year bond rose 1.4 to just over 315. New low yesterday in EUR at 131.71.  New low as well in red/gold pack spread at 194.25, down 1.375 on the day.  The spread hasn’t been this low since June of last year, when it was on its way up to the ultimate high of 306 right at the end of 2013.  So from the high, it has fallen nearly 112 bps, or 36%.  The ten year yield was also just above 300 bps at year end, now 239.  Strength in the golds has been remarkable.
–There was a late buyer yesterday of 25k FVZ 118.75/119.75 call spd for 23, new position.  Somewhat interesting given today’s upcoming auction of 5 years.  There was also a large buyer of TYV 123.5/124/124.5p trees yesterday, settled flat with a small call delta.  Open interest was up 151k in October ten yr puts, mostly due to this trade.
–There’s an interesting piece on Bloomberg, noting that global equities are at a record $66 T.  From the article, “The value of equities globally has soared from $25 trillion in March 2009. Stocks were valued at $63 trillion at the 2007 peak…”  The value of US equities is about $21 T or about 32% of the total, and is approx 124% of US GDP.
–Record low yields in developed countries have spurred this gain in equities, driven by QE, and the ECB is now getting ready to jump in to the QE pool just as the US gets out to towel off for a rest.  My feeling is that the move to extremely low yields coupled with flattening curves is a sign of economic malaise going forward, but the central banks continue to look for sparks caused by the “wealth effect”.

Posted on August 27, 2014 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

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