Feb 26. Can Bernanke alone undo Italian “risk off” damage?

–Bernanke speaks today in semi annual testimony to Congress.  New Home Sales also out, as well as 5 year auction.
–Extraordinary moves and volume yesterday with focus on the Italian election stalemate, one paper’s headline proclaiming “The Winner: Ingovernability.”  (Hasn’t seemed to hurt the US so far…)  It’s a rejection of austerity for the public and government largesse for the banks… Biz Insider notes that eurozone banks are selling at large discounts today, including Soc Gen and Credit Agricole down about 5%. The prospect of less gov’t support for the banks could send the whole house of cards tumbling, which of course, ignites a bid for free parking in US treasuries.
–I would say that the reversal in USD/JPY is just as important as eurozone issues. The news of Kuroda (expansionist monetary policy) taking the reins at the BoJ was met with new highs around 94.50, but then a huge outside day reversal ensued with a move below 91.  EVERYTHING has been correlated to yen weakness, and now it’s “going the wrong way.”  In any case, many “risk-off” signals were triggered yesterday, and it seems unlikely that Bernanke can single-handedly undo the damage today.  I would guess there will be at least some focus by the politicians on the Fed piggy bank portfolio remittances to the gov’t that help fund the deficit, and the prospect that those amounts taper off.
–All eurodollar calendar spreads plunged to new recent lows, though ranges had been fairly tight in the past month.  2/10 fell about 6 bps to 165, though only 11 bps off the high of the move which is 176.  Last 20 trading days high 176, low 167.  There were late block trades of 40k in euro$’s, which appear from this morning’s open interest sheets to be exits.  For example Short red June 9937/9912ps (1’s) vs Gold June 9762/9737ps (3’s) and bought back 40k Green March 9950c for 0.5.

Posted on February 26, 2013 at 5:43 am by alexmanzara · Permalink
In: Eurodollar Options

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