Jan 9. Ten year yield edges lower…auction today should be a test. CONSUMER CREDIT

–A lot of bullish trades in interest rate options yesterday. For example, Green Sept 9925/9937c spd bought vs 9875p (sold put for 1.5 credit) 20k. TYJ 128.5 put were sold about 20k from 23 to 25, with last batch being sold at 23 vs 130-25. (both new). Curve flattened as ten year yield fell a bit over 3 bps to 187, (what had been the upper end of the yield range prior to last week’s break out).
–Yen weakening again as Reuters reports BoJ may double inflation target to 2%. In the US, ten year treasuries auctioned today.

–Consumer credit was up another $16 billion in November. Looks solid at first. Confident consumers. The interesting dynamic is that most of the increase was non-revolving, i.e. student loans and autos. Revolving credit was up at an annual rate of only 1%, which sort of dovetails with reported increase in retail sales. Non-revolving was up 9.5%. Obviously, student loan debt is being substituted for credit card debt. Duh. It’s all there on the Fed website. Deleveraging?? Total Cons Credit was $2.529b in 2007, now 2.752, so that’s not lower, but… REVOLVING (credit cards) went DOWN from $1008b in ’07 to $834 now, a decline of over 17%. Who plugged the hole? FED’L GOV’T education loans, that’s who. Fed’l Gov’t as a HOLDER of consumer credit went from $93b in 2007 to $521b now. FIVE TIMES HIGHER! Who wouldn’t want to substitute 12% card debt with 6% gov’t debt? [footnote on fed website explains that gov’t holdings are for education loans, doesn’t say what they’re actually USED for] Is that actually a sign of organic strength in the economy?
–But instead of attacking the problem…hey…we need to contain costs at the STATE schools, which might put competitive pressures on the private schools, no, that’s not the strategy at all. The admin is working on new debt s-t-r-e-t-c-h or forgiveness plans for student loans. What do we call it? STIMULUS.

Posted on January 9, 2013 at 5:14 am by alexmanzara · Permalink
In: Eurodollar Options

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