Dec 9. Is it tapering, or something much larger?

–Rates moved a bit higher after Friday’s stronger than expected employment report. Tens were up a couple of bps at 288. Going into next week’s FOMC, it’s all going to be about tapering and when it starts.
–As we go into the last Fed meeting of the year, I would like to consider the tapering decision in the context of rates and spreads,comparing the first 4 months of the year with the period of May forward, the latter being when hints of tapering/tightening ensured.  Back in April red/gold pack was 150ish, now it’s double that and at the high for the year at 298.  2/10 was also around 150 in April, but is now 259, a new high for the year.  Red/green had been around 30, got to a high of 109 in mid-Sept, but is now around 87 as the Fed’s forward guidance message has taken hold.  The ten year yield held under 2.05% for the first 4 months of the year, and is now 2.88.  Apart from inflation, data has improved. One could argue that the heavy lifting for tapering has already occurred, that the adjustment following the Fed’s (mis?)communications has placed the bond market on more steady footing to absorb policy change. After all, many yields and spreads related to the Fed’s bond buying are up 100 bps or more.  Perhaps though, the market is a little too focused on tapering, and what we are seeing is a global phenomenon of rising bond yields which is a much larger function of capital flows…that’s the question for 2014.
–Today we have Fed speakers Lacker, Bullard and Fisher, starting at 12:30 NY time.  Treasury auctions 3’s, 10’s and 30’s starting tomorrow.  Retail Sales Thursday.
–Speaking of QE, Japan’s Q3 growth was revised lower, but the Nikkei surged 2.3% with $/yen above 103.  A pretty clear indication of forward QE expectations in that country…

Posted on December 9, 2013 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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