Feb 10. Trump on/ Trump off

–Interest rate futures reversed Wednesday’s gains yesterday, with the ten year yield rising 5 bps to 239.5 as the market digested this week’s auctions and Trump vowed a big announcement on taxes.  Stocks ramped to new highs.  Curve saw little change as rates parallel shifted higher.  Markets now face the uncertainty of ‘tweets’ in the context of probability and timing, as earlier reports pushed back the idea of tax reform into 2018.

–Trump reportedly affirmed the one-China policy on a call with Xi though a close encounter between military aircraft of the two countries is a reminder of potential issues.

–Large trade yesterday was a buyer of 100+ 0EM 9812/9800 put spreads vs 9850/9862 call spreads, paying 0.5 for the downside.  New position; adding.  The EDM7/EDM8 spread had settled 47.5 Wednesday but moved back up to 50 with the pressure on EDM8.  However, euro$ calendars in general remain quite flat, with the only one-year spread higher than June/June being March/March, and that’s still only 54.   Chicago Fed’s Evans yesterday said three hikes in a year were reasonable; the market doesn’t buy it.

–Swap spreads continue to press higher.  I would target the five-year, shown on chart below, to reach 20-25 bps from just below 9 currently.

–Though Japanese stocks are moving higher with the global herd (and a weaker yen) I continue to see news articles regarding Tepco’s Number 2 reactor.  News reports generally assure us it’s stable, but a robot was halted yesterday by high radiation levels… 1000 sieverts (!?!!).  Something to be aware of as this story has potential to dwarf all others.



Posted on February 10, 2017 at 4:28 am by alexmanzara · Permalink
In: Eurodollar Options

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