August 15. $/yen going to 120 by year end

–30 yr bond auction yesterday was bid 2 bps through pre-auction level, coming in at 3.224.  Ended the day at 3.205 as demand for US assets (and some type of yield) continues unabated. USU is at the 140 strike with one week to go until Sept option expiration.  USU 140^ settled 1’14, just under 8 bps.  Crude oil sold off smartly with CLU down 214 at 9545 and CLV down 271 to 9403.  Inflation expectations are evaporating.  New low in ten year treasury to inflation index note spread at 222.4.  The ten year tip is just under 18 bps; real yields hover around zero, right where the German Schatz is.   At the end of July, Aug ’15 FF futures were at 9950, suggesting that by the July 2015 FOMC, rates would be at 1/2%.  The market has decided the economy couldn’t possibly withstand such a punitive rate and FFQ’15 settled 9962.5 yesterday.  Going into the Fed’s Jackson Hole conference, there will likely be presentations on how the Fed can more appropriately support the economy…
–The highest one year euro$ spread is still Dec’15/16, now the only spread over 100 at 101.5.  At the end of last year the high was 124, a drop of about 20%.  Ten year yield was 305, now 240, down 21%.
–Japan tens are 50 bps, as the idea of building an ice wall around Fukushima (remember that?  I think we’re going to be hearing a LOT more about it) has been scrapped.  Of all the astounding signs of complacency, perhaps the sideways range of JPY between 101.60 and 102.60 for the past three months takes the cake.
–Today’s news includes PPI expected +0.1 with +0.2 Core.  Empire Carpets 20.0.  Industrial Production +0.3.

Posted on August 15, 2014 at 5:29 am by alexmanzara · Permalink
In: Eurodollar Options

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