Dec 2. Employment report; Actual NFP +120k, rate plunge to 8.6%

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–Employment report today with NFP expected 125k and the rate unchanged at 9.0%.  Interest rates are pushing higher in front of today’s report.  Ten year yield rose 5 bps to 2.11.  New highs in a few of the one-yr euro$ calendars.  For example EDM2/EDM3 spread (which is the lowest one-yr spread) was up 2.5 bps to a new high of 10.5.  I recall when the Fed first cut rates to the then unheard of low of 3% in the early 1990’s that one year spreads traded a bit over 200 bps at the highs.  The first time down to 1%, I think one year spreads traded over 260 bps.  The market sentiment was that such stimulative rate posture couldn’t possibly last for long, and would have to be dramatically reversed.  Now with rates at zero, even the one year forward spread of EDZ12/EDZ13 is less than 1/4%.

–After NFP tens sold off but snapped right back as internal components of the report, like labor participation rate, indicated continued weakness.  As of 9:00 CST TYH2 is now unchanged at 129-04.  SPZ1 is still 11.00 higher on the day.  The biggest underlying news in the market concerns a WSJ (and others) report that ECB’s Draghi is opening the door to large scale sovereign bond purchases if gov’t can impose budget discipline.  Sort of like when Greenspan told Clinton he would lean toward easier policy if Clinton held tough on the budget.  In this case, I would think that large scale ECB purchases would be quite inflationary, but financial assets would certainly rally in the short term.

Posted on December 2, 2011 at 9:05 am by alexmanzara · Permalink
In: Eurodollar Options

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