Jan 14. Trichet voices inflation concern, EUR rallies

Jan 14.  Ten year treasury yield fell 6 bps to 3.30% as this week’s auctions culminated with the 30 year bond.  Jobless claims jumped 35k, though trade data signified stronger GDP growth.  The curve was flatter with 2/10 down about 5 bps to 272.  European rates went the other way as Trichet voiced concern about inflation, causing red euribor contracts to drop about 18 bps.  German inflation data out this morning was highest in two years due to energy costs.  EUR/USD exploded higher, but silver had fallen by $1/oz late in the day, and copper is looking toppy as well.
–Midcurve January options expire today, with many pegging the 9900 strike in EDH12 (settled 9907 yest), though I wouldn’t be surprised to see 99125 strike come into play. 
–Plenty of data including Retail Sales expected +0.8%, CPI expected +0.4% and +0.1 Core.  Ind Production expected +0.5 with Capacity 75.6.
–Muni bond funds continue to drop, though apparently CDS on Illinois fell from about 360 to 295 bps after the state jacked up taxes (income tax from 3 to 5%).  However, there was also an article about banks simply abandoning foreclosed homes in Chicago, and many predictions about businesses leaving the state.  The crunch in state finances continues; it’s getting to the point where China is going to have to come in to support bonds of CA, IL, etc.

Posted on January 14, 2011 at 5:00 am by alexmanzara · Permalink
In: Eurodollar Options

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