Jan 3 2017. Re-set the year

–Friday’s rally in interest rate futures has more than reversed with TYH trading below the 124 handle.  Talk of asset allocation out of stocks and into bonds last week has been erased from the memory banks as stock index futures have rebounded from Friday’s drop.  What a difference a year makes – last year crude oil was plunging to its lows in January (around 25 to 30), but is up over $1/bbl this morning at 54.90, starting the year off near new highs.

–In August 2015 China’s surprise devaluation sent a tremor through risk markets globally.  Since that time, China’s currency has continued to weaken, but pressure is building for another big move.  Bloomberg is reporting on new restrictions for conversions of up to $50000 (the annual limit re-set at the start of the year).  https://www.bloomberg.com/news/articles/2017-01-03/china-drills-down-into-forex-transactions-as-money-exits-abroad

Zerohedge has an article on punishing drains of liquidity, sending 3month Hibor and Shibor rates to new highs.  Bitcoin trades over $1000 and CNY is 6.96 according to Bloomberg’s website.  Clearly some of the pressure is related to the re-set of currency conversions as of the start of the year.  The point is that there appear to be tensions building both economically and geopolitically relating to China and while dollar assets are immediate beneficiaries, in the longer run that may not be the case.

http://www.zerohedge.com/news/2017-01-02/chinese-interbank-lending-freezes-government-bond-trading-halted-after-massive-pboc-

–Friday’s trade, though quite light, featured new low marks in some curve measures.  Fro example, red/gold euro$ pack spread closed at a new monthly low of 82.5 bps, down 3.5 on the day.  Green to blue euro$ pack spread settled under 1/4% at 24.5; positive roll is becoming more compelling from these levels.

–Interesting quote from Ambrose Evans Pritchard over the weekend: “World debt ratios are already 35 percentage points of GDP higher today than they were at the top of the last cycle in 2008.”

Posted on January 3, 2017 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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