Feb 7. Swap spreads and european sovereign spreads widen, indicating increased stress

–Yields in the US slumped Monday, more than erasing Friday’s late sell off as attention re-focuses on european spreads.  The ten year yield dropped nearly 8 bps to 241.1, while blue eurodollars were the star performer on the curve, +8.375.  This morning the dollar is stronger across the board, as political tensions in europe increase, German Industrial Prod surprised to the downside at -3%, and China’s fx reserves “… fell for the seventh straight month in January; below $3 trillion for the first time in six years.” (Reuters)  The stronger dollar appears to be funneling demand to US assets, with stocks edging a bit higher and treasuries holding yesterday’s gains.
–As can be seen in the chart below, the two year swap spread is blowing out, at a new high for the past 12 months at 32.6 bps.  At least part of this move is related to concerns about the debt limit, as the extension ends in late April.  Demand for safe haven assets is likely also a factor.
–I skimmed a couple of articles today warning of impending doom from increased household bankruptcies and tightening credit standards.  The most recent Fed’s Sr Loan Officer survey does note some tightening on Commercial Real Estate, and that banks’ demand for auto loans has declined, but that’s not too surprising as the Fed has repeatedly warned against frothy CRE conditions and auto loans have deteriorated in quality.  However, the Fed’s quarterly Financial Obligations Ratio has remained at around 15.4 for the past 3 years; there is little indication of an increased burden on Households.  Today, the Fed releases Consumer Credit data, expected $20 billion (for December).  News also includes the Trade Balance, expected -45.0b, and JOLTS. 3-year treasury auction.




Posted on February 7, 2017 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

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