August 15. Serenity now

–Yields fell Friday as both Retail Sales and PPI disappointed.  Retails Sales were 0.0 vs +0.4 expected and Core PPI fell 0.3.  The ten year yield eased nearly 6 bps to 151.5.  The tow year yield was down 4 to 70.6.  The eurodollar curve from reds back flattened to new lows.  Red/Green (2nd to 3rd) pack spread is sitting just above 12 bps.  According to the FF market, odds for a Sept hike are below 10%, while December is around 30%.  Both Atlanta and NY Federal Reserve bank forecasts for GDP in Q3 were revised down by 0.2 on Friday, ATL to 3.5 from 3.7 and NY to 2.4 from 2.6.

–Implied volatility is low and grinding down.

“Technically one should note that volatility is extremely low and that is usually a reason to be on your toes.” From a Reuters piece this morning quoting  SEB investment management head of global asset allocation Hans Peterson.

“Volatility is dropping and bonds prices continue to rise. …Thus you feel emboldened to get longer as you don’t feel the risk that you are carrying.”
Citi bond and CDS trader, Jack Weaner.
–While the financial world blithely prices out risk, it is starting to be a different story for boots on the ground.  Wisconsin Governor Walker called in the National Guard after unrest and rioting in Milwaukee. From Saturday to Sunday in Chicago, 5 dead, 19 wounded in shootings, and since Sunday morning, one man killed and 10 others shot, including a six year old girl.  Disparities appear to be increasing on many levels.
Posted on August 15, 2016 at 5:07 am by alexmanzara · Permalink
In: Eurodollar Options

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