Jan 21, 2011. States explore bankruptcy

–A few notes this morning.  NYT article says Congress is quietly considering how to allow states to declare bankruptcy or otherwise eliminate crushing debt and pension obligations.  CA Gov Brown declared a ‘fiscal emergency’.  Article on BBG says Spain may have a difficult time lining up investor support for Cajas.  Margins again raised on silver and gold…both were under heavy profit taking pressure, as was copper.  Obama replacing Volcker with GE’s Immelt.  The country is edging farther from Bedford Falls and more towards Pottersville. Finally, both German and French business confidence jumped.
–In yesterday’s interest rate trading the curve steepened to new highs.  2/30 just under 400 bps.  Red/gold pack spread up 7 bps to 292.5 as golds sank 18 bps.  Tens are beginning to feel as if they want to test 3.50%.  I was completely wrong in thinking we would end closer to 3.20%, in a week with no treasury auctions, (but net POMO buying).  This has been a very bad week for QE proponents. Feb treasury options expire today.
–In terms of states’ problems, it seems to me that the solutions are either that muni investors take a haircut, or obligations are steathily transferred to the Federal govt.  Former OMB director Peter Orzag argues in an op-ed in the FT that US state problems are nowhere near comparable to Greece.  I guess we’ll see how the market sorts it out, but the demand for higher rates to compensate for risk gives a clue, (as does the steeper curve).
–Finally, food product inflation is unending: New Delhi, Jan 20 (PTI) Cardamom futures prices rose by Rs 11.30 to Rs 1,528 per kg today, as speculators enlarged their positions on the back of strong demand in the spot market.

Posted on January 21, 2011 at 5:28 am by alexmanzara · Permalink
In: Eurodollar Options

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