August 13. Slight steepening bias to yesterday’s curve

–Fairly quiet in interest rates yesterday, however there were some large trades late in the session, apparently spurred by a Reuters article with this summary: ‘Yellen resolved to avoid raising rates too soon, fearing downturn.’  Large buying out to EDH16 which closed +2.5;  last two reds were the strongest part of the curve with the most increase in open interest (EDH16 OI +38.6k with total ED open int +84k).  There was also a late buyer of 40k Blue Dec 9712/9687/9662/9637 p condor for 6.0.  Net effect was a slight steepening of the curve, with reds +2.25 and golds -1.25.  A few near spreads made new lows.  For example EDU14/EDU15 fell 1.5 to 50.5.  Mind that the sometime in the beginning of next year is when tightening is expected to begin, yet the market prices the one year spread at only 50 bps…  EDZ14 9975 straddle settled at just 4.5, with 125 days until expiration.
–A Telegraph article by Ambrose about the glut of oil has the following line:  The IEA said in its monthly report that the oil market seemed “eerily calm in the face of mounting geopolitical risks spanning an unusually large swathe of the oil-producing world”.   It’s not just the oil market, it’s every market.  CLU is lower this morning at 97.23, the geopolitical gains of late June which saw prices nearing 107/bbl have been thoroughly erased.
–Elsewhere in the world Japan’s GDP plunged by 6.8% in the aftermath of the consumption tax.  From this morning’s FT: “Chinese lending slumps amid property downturn…Credit grows at slowest pace since 2008”.  Stocks are, of course, higher across the board, with even the Nikkei and Shanghai Comp posting slight gains.
–Today’s news includes Retail Sales expected +0.2.  Fed’s Dudley speaks about wholesale funding risks…did you see the EDZ straddle Bill?  Ten year notes are auctioned in the afternoon.

Posted on August 13, 2014 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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