Dec 4. Employment report

Dec 4, 2009.  Significant curve steepening on the eve of the employment report.   Ten year yield rose 6 bps to 3.38%; about 19 bps higher than the low set in the beginning of the week.  Rumors circulated yesterday that Japan’s Ministry of Finance was informing the US of a move to sell $100 B of treasuries to fund domestic programs.  Though this rumor may have contributed to the bond sell off at the margin, implied vol in treasuries was stable.  In my opinion it’s more likely that bond yields are rising as a concession to next week’s supply. (A surprise drop in non-mfg ISM to 48.7 vs expected 52 provided some support to shorter maturities).
–2/10 treasury spread ended around 265, close to the recent high, while red/gold pack spread edged to slight new high of 255+. 
–Stocks made a new high early as financials rallied on news of Bank of America repaying TARP funds.  However, the initial euphoria evaporated into the end of the session.  Many financials had outside days and closed at the lows, as did SPX, which actually reached its highest high for the move before failing.  Continued caution is warranted regarding stocks. Sell Mortimer, SELL!
–Nonfarm payrolls expected -100k.  Rate expected 10.2%, although the White House already let it slip that the rate is likely to be higher. Avg workweek stuck around 33.

Posted on December 3, 2009 at 7:15 pm by alexmanzara · Permalink
In: Eurodollar Options

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