Dec 14. Light volume, high volatility in rates

Huge rally after a crazy flush Sunday night.   Green euro$’s were down around 15 bps early Monday morning, but came back to close +5.  Ten year yield was fully 100 bps higher than the low set in early October of 2.38%.  Tens closed yest at 3.28%, down 2 bps.
–FOMC meeting today.  November’s statement was downbeat on the economy as QE2 was announced.  Since then the data has generally been better, but while the committee said it will “regularly review the pace of its securities purchases and the overall size of the asset-purchase program”, I am sure there will be no changes announced today.  Around the last FOMC on Nov 3, ten yr tip to note spread was around 217, now 223.  2/10 was around 225, now 268.  The real drop in yields had come in anticipation of the start of QE, as tip sprd was below 200 and 2/10 got to 205 in early Oct. Clearly inflationary expectations are starting to percolate, but not enough for the Fed to change stance. 
–New highs yesterday in copper and CRB.  Interestingly JPM says it is going to cut the size of its silver position.  With the advent of ETF products that target single commodities it seems to me that the potential for parabolic moves like the oil price spike to $140 are becoming more likely.  Not sure what that will mean for monetary policy. 
–Heavy buying of near eurodollar calls yesterday as Fed expected to remain on hold.

Posted on December 14, 2010 at 11:57 am by alexmanzara · Permalink
In: Eurodollar Options

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