Aug 6. Flight to quality could really take off, as dollar and long bonds make new highs

–Weakness in equities is spurring a bid in longer dated treasuries this morning with USU near a new high at 138-30.  Late yesterday stocks finally took notice of the Russia/Ukraine situation as Poland’s Sikorski said that Russia’s troop build-up at the border may portend an invasion.  The immediate drop in stocks is a signal of a skittish market, and the news of Fox withdrawing its bid for Time Warner is another negative sign (along with Spring dropping T-Mobile bid).  This morning DAX is down 1.5%, the pullback from the high last month is now around 10% in Germany.  DAX also well below its 200 day MA.  The dollar index is at a new high for the year as EUR continues to probe lower, currently 133.65.  Nikkei also continues to fall, a sign that massive stimulus in Japan has run out of steam.
–The ebola scare is also threatening to expand and depress international trade.
–There was some early buying of out of the money Ten Yr calls, 5k TYZ 129.5c for 6 and 2k TYV 133c for cab8, along with a late buyer of a few thousand TYU 126c for 12.  If stocks continue to decline, then fixed income vol is likely to jump from current depressed levels.  For now buying is occurring at the longer end, but we might look back in 3 months and say that fives at 165 were a steal.
–(Reuters) ABC…Anything But Capex  …Corporate America has never been more flush with cash. But business investment or capital expenditure – “capex” – has remained depressed, puzzling economists and strategists who have long predicted its resurgence and attendant impact on growth.

Posted on August 6, 2014 at 5:15 am by alexmanzara · Permalink
In: Eurodollar Options

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