Dec 8. Oil spill (and spillover into other markets)

–With crude oil crashing to new lows below $38/bbl (-229 late at 37.68), the curve flattened and US interest rate futures rallied.  The ten year lopped another 5 bps from the yield to close at 2.22%.  2/10 treasury spread closed down 3.6 at 129.  Red/gold euro$ pack spread ended down 4.875 bps to close just above 100.
–This morning the Chinese yuan is weakening to new lows at 6.4179.  Canadian dollar made new lows yesterday and stocks were crushed in sympathy with crude.  Russian ruble weaker for the same reason.  Disinflationary trends are apparent in many places.  A friend pointed out that shipping stocks were being savaged, for example CMRE down 50% from June.
–High yield making new lows.  JNK at its lowest level in over four years as the evisceration of energy re-focuses attention on companies that might not be able to service their debts.  Speaking of servicing debt, Consumer Credit was released yesterday, up $16 billion but almost all of the growth was in non-revolving (autos and student loans).  Student loan debt is around $1.3 trillion.  Assuming an interest rate of around 6% that would be $80 billion just in interest.  If it were actually being serviced.  Revolving credit was up only 0.2% on an annual basis after strong growth in September.
–There was an interesting curve trade in 50k yesterday…buying EDM6 9912.5 puts which are 5 bps out of the money as of yesterday and settled 8.0, versus selling 2EM 9762.5 puts which are 51.5 out of the money, 7.5s.  Early in the day the trade was done at 0.5 credit to sell green over, and flat.

Posted on December 8, 2015 at 5:18 am by alexmanzara · Permalink
In: Eurodollar Options

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