Dec 9. US yields surge. Tens up 85 bps in 2 months

US interest rates continue to surge, with ten year yield up another 10 bps, just under 3.25%.  However, going into today’s auction, the yield on the 30 yr bond was up only 7 bps (5 yr yield up 13).  Relative stabilization at longer end of the curve makes me think a bounce is likely.  Additionally, implied vol was hit late, another indication that the move may have run its course. Green eurodollar pack (3rd year) was down nearly 17 bps, while golds (5th year) fell only 2.75 bps.  Red/green/blue butterflies exploded higher (more than 11 bps).  For example, EDU12/U13/U14 fly was around -14.5 at the open, settled -2.5.
–According to BBG, Deutsche Bank floated a proposal to help support periphery bond markets, including the ECB accepting lesser rated collateral for loans and a margin call holiday.  Other news stories detail the plunge in “Build America Bonds”, as the new Congress is unlikely to renew the program where the federal gov’t pays a part of the interest on muni issues.  There have been so many market propping efforts (relaxed FASB rules, QE, Build Am Bonds) that it’s difficult to know if they can ever be withdrawn without total chaos.  In the case of BAB’s, we may see how the unwind plays out for cash strapped local gov’ts.  If the DB proposal is adopted, I would think it would add stress to the commercial banking sector, or perhaps just make the ECB more complicit in papering over problems.
–Gold and silver were slammed yesterday, but other commodities were firm.  Copper made a new high. CRB remains near highs.
–News includes Jobless Claims expected 425k, and 30 year auction.

Posted on December 9, 2010 at 6:55 am by alexmanzara · Permalink
In: Eurodollar Options

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