Jan 4. Continuing new lows: EUR, Oil, Eurodollar curve

–Friday’s price action featured new lows in crude oil, euro, the US curve, German yields (where the 5 yr fell to a negative yield).  On the eurodollar curve, red/gold pack spread fell 3.625 to just over 120 bps, as golds finished up almost 6 bps.  Red/green euro$ pack spread fell to 67.75.  New lows continuing the flattening through 2014.  Implied vol in treasuries firmed slightly as futures moved to higher strikes.  Ten year treasury fell 5 bps to 212.2.  
–There was an article in Barron’s featuring views of Jeffrey Gundlach, who says that tens could conceivably take out the 2012 low of 1.38%, due to the disinflationay impact of a stronger dollar, weaker oil and other commodities, and slowing emerging markets.  In terms of oil’s drop, he says “The boost to US consumers from lower pump prices is the first shoe to drop, but the negative secondary effects from the crude oil price collapse take longer to surface.” [Including lower capital spending and employment reversals related to the oil boom].  
–This week will feature Fed minutes on Wednesday and the Employment Report on Friday. 

–Der Speigel article reports that Germany thinks a Greek exit would be manageable. Greece’s Tsipras of Syriza wants a nominal write down of Greek debt.  This situation makes the Jan 22 ECB meeting quite important, as it puts into question Draghi’s pledge to do “whatever it takes” to save the euro (perhaps now without the implicit backing of Germany).  Greece debt to GDP is around 174%.  However, the national debt of Greece peaked in 2011 and is now below the level of 2010.  Consider that in relation to Italy, with GDP 10 times that of Greece.  An Italy exit clearly would NOT be manageable.  But Italy’s debt continues to grow every year in a stagnant economy, and the recent debt to GDP estimate is 136%.

Posted on January 4, 2015 at 7:01 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply