Aug 9.

Aug 9.  A day of huge volatility in many markets Monday, with SP500 down 6.7% and gold up 3.7% to over $1700/oz.  Implied vol screamed higher in stocks and treasuries as the flight to safety spurred a treasury rally in spite of S&P’s downgrade of US debt.  New low in 2 year yield to 26 bps.  Fives, which were as low as 1.03% last November traded to 1.09%, down 15 bps.  Tens fell 21 bps to 2.34%, slightly below last October’s low but still well above the crisis low at the end of 2008, which was 2.055. (Treasury auctions 3-yrs today).

–Even AAPL and GOOG were down over 5.5%, while Bank of America was down 20% and Citi nearly 16.5%.

–FOMC meeting and announcement this afternoon.  I keep wondering what the Fed can possibly do to soothe investors’ jangled nerves, and I can’t really think of anything.  A commitment to keep rates low is now threadbare.  The possibility of QE3 could be construed as panic, and QE2, though perhaps marginally beneficial, didn’t meet expectations of providing a solid floor under asset prices.  Indeed, Europe’s purchases of Italian and Spanish debt corresponded with crushing new lows in european banking names. Government pledges to saddle taxpayers with unsustainable debt in order to ‘support the market’ aren’t passing the sniff test…driving gold ever higher.

–EDZ1/EDH2 euro$ spread settled negative yesterday at -0.5.  That’s sort of a big deal given that short rates are already near zero.  One year Dec11/Dec12 calendar spread is only 13 bps.  The market is already convinced of low rates for an extended period…going to have to pull something else out of the hat….

Posted on August 9, 2011 at 12:36 pm by alexmanzara · Permalink
In: Eurodollar Options

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