Dec 2. QE taper concerns edge a bit higher

–Data this week may sway the argument toward a December taper.  Today’s news includes ISM, with non-mfg ISM and Beige Book on Wednesday and the Employment situation on Friday.  Markit’s PMI data was released this morning for the eurozone and was mixed.  As a whole “Output, new orders and new exports all expand for the fifth consecutive month…but fail to halt the ongoing slide in manufacturing employment.”
–The US trades as if tapering concerns are edging higher.  Ten year futures are down half a point, blue eurodollars are down 7.  Yen is making new lows, gold is close behind, GCG -13 to 1237.  Interestingly, treasury straddles lost no value on Friday; implied vol was better bid throughout the interest rate complex, another indication of taper concern.  Tens and bonds are at the highs of the previous month’s range in implied.  Red/gold eurodollar pack spread rose nearly 2 bps and is also near its high, just under 285.  Again, red/gold pack spread is just 15 bps away from a new high for the year, while the ten year note is 26 bps away from yearly highs.
–From BBG: “Abe No Friend to Emerging Bonds as Nikkei Jumps Most Since 1972.” With Japanese investors jumping on the equities train, flows into emerging bond funds are running half the pace of the past three years.
–Emerging markets were a victim of the tapering scare this year, and while many emerging markets recovered with the Fed’s inaction in September, risks of less QE along with changes in Japanese flows, (and the weaker yen making japanese goods cheaper), should provide fresh challenges for EM this year.

Posted on December 2, 2013 at 5:26 am by alexmanzara · Permalink
In: Eurodollar Options

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