July 11. More cracks in muni finance…

–More of the same US interest rate trading. New lows in the curve. 2/10 at 123 bps. Red/gold pack spread down 3.6 to 111, new low for the year. More buying in gold euro$ midcurve call structures…see below for details.
–Ten year treasury auction today. FOMC minutes at 1:00 Chicago time. 30 yr bond tomorrow.
–A couple of snippets regarding China’s slowdown: From BBG, Wen says investment is the key to stabilizing growth. And from WSJ: “China is increasing state spending to counter its sharpest decline in growth since the financial crisis.”
–Meredith Whitney was right about municipal bankruptcies, just took a bit longer than forecast: (Reuters) “The city council of San Bernardino, California, voted on Tuesday to file for bankruptcy, marking the third time in recent weeks a city in the most populous U.S. state has opted to seek protection from its creditors.” And in the Chicago Trib: “Moody’s Investors Service on Tuesday downgraded Chicago Public Schools’ bond rating after the cash-strapped district proposed a budget that would deplete its financial reserves… Moody’s lowered its outlook for the district from stable to negative, citing its $5.9 billion in general obligation bond debt.” One city agency with $6 B in debt!!
–A twist on the strong May consumer credit number. “Spending for discretionary items at venues like hotels, clothing stores, restaurants and bars declined in May, according to First Data. Meanwhile, credit spending at general merchandise stores, including value retailers and discount stores, increased, providing some evidence that Americans living on a budget are borrowing for their shopping instead of using cash.”

–Midcurve buying: Gold Sept 9850/9862/9875/9887c condor 4.5 paid for at least 15k. (Underlying EDU16 settled 98.53). Blue Dec 9887/9900/9912/9925 c condor bought for 4.0 in total 25k (underlying EDZ’15 settled 98.90). Seller of 0EZ 9950/9962cs vs Gold Dec 9837/9850c spd 3.5 for 10k. Nothing with a huge payout given premium outlay, these trades work best in a low vol grinding rally.

Posted on July 11, 2012 at 5:33 am by alexmanzara · Permalink
In: Eurodollar Options

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