Jan 10. Rising energy, state taxes counteract Fed stimulus

A backdrop of unsettling news continues, with European sovereign debt problems, US state debt problems (Illinois as poster child/NYT article), currency and trade war tensions, rising gasoline prices (up 9 cents to 3.09 in past 2 weeks, Chicago highest in nation), inconsistent employment growth, more mortgage/robo-signing issues for banks, and now the shooting of US Congressman Giffords.  IL wants to raise state income tax from 3% to 5.25%. Rising energy prices and state fee/tax increases are counteracting federal stimulus. I didn’t double check this but heard that the JOC index of industrial materials made a new high.
–One year euro$ calendar spreads sank after employment report.  For example, EDU11/EDU12 fell 10 bps to 93.  Only a few one year spreads are clinging to levels over 100 bps. The idea of Fed rate hikes keeps being pushed into the future.
–There are treasury auctions this week, but also continued Fed buybacks (POMO’s) which commence today, $7-9 billion of treasuries maturing 2018-2020.
–The ten year note yield  closed around 3.32% Friday, and seems to have rejected 3.5% for now.  Though many believe treasury prices are in an unsustainable bubble, I think 3.10 to 3.20 is likely to be the next stop, as a flight to relative safety dominates trade.

Posted on January 11, 2011 at 6:42 am by alexmanzara · Permalink
In: Eurodollar Options

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