Jan 4, 2012.

–Risk assets were embraced for the start of the new year with US stocks up ~1.6%. (Sort of like the Chicago Bears coach proclaiming the team is 1-0 in 2012). Ten year yield rose about 8 bps to 1.96%…still sub 2% going into employment data.  Curve was steeper with red/gold euro$ pack spread up 5.5 bps. ISM was stronger than expected at 53.9.
–Option trade was mostly bearish regarding rates.  E2F 9900p (green Jan, expires one week from Friday) traded 3-3.5 about 16k, new buyer.  Also a new buyer of 13k E2U 9825/9775p spd for 5.5.
–The Fed announced plans for greater transparency and rate forecasts. (Reuters) “…it could offer the economy a bit more of a lift by better aligning financial market bets with the main view at the central bank.”  Really?  The Fed’s forecasts for the economy in 2011 were off the mark and revised lower.  The ECB erroneously raised rates as late as July.  I don’t know if Central Bank guidance is that valuable over the longer term.  Rates are very low, the curve is quite flat.  I would just go with the market forecast of the economy and rates (sluggish). In the days of Greenspan market signals were cited as clues about economic perceptions…e.g. forward 5 year rates, tips vs treasuries.  Now the Fed wants to guide those views and perceptions.  The trend of increased gov’t activism isn’t addressing the over arching problem of too much debt.
–While commodities and metals were strong, crude oil was a star performer…up about 4% on the day with CLH 103.25 late, up 4.25, spurred by mideast tensions.  Cheaper gas prices have underpinned stronger than expected US data; a prolonged rise in crude would be quite negative.

Posted on January 4, 2012 at 8:31 am by alexmanzara · Permalink
In: Eurodollar Options

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