Feb 15. PBoC Zhou says China will support eurozone
Feb 15. Once again the curve flattened with red/gold pack spread falling over 11 bps, (reds -0.375 and golds +10.875), to a new low of 147.5. Ten year yield fell 6 to 1.93%. Stocks tested the downside but came back to close at the highs.
–China’s central banker Zhou made comments that China will support the eurozone, lifting EUR. The global answer is central bank liquidity, it doesn’t matter what the question is. Today China, yesterday Japan’s increase in QE. The beneficial outcome is higher financial asset prices which in turn contribute to the health of the banking system. Higher basic commodity prices are simply a reflection of the market’s confidence in the ability of CBs to foster economic growth. The FOMC minutes are sure to explain it all this afternoon.
–The pivotal area of the eurodollar curve is the red pack and has now extended to the first green. With a month to go until expiration the Green March 9925 straddle (2EH4) is being sold at 13.0 (settled 13.5). With ten months to go EOZ 9925 straddle is only 34. When front contracts decline due to momentary concerns about financial stress, the backs rally and the curve flattens.
–The yen fell on BoJ QE extension, with USDJPY finally getting above 78.50 without direct intervention. Trend may have finally turned…
