July 12. Negative feedback loop

–Heavy buying of front four eurodollar contracts led to a small rebound in the curve. Ten year auction went off at 1.459 on bid to cover 3.6. Fed minutes showed some members were open to further easing; individual Fed presidents have already indicated a willingness to do more in the past few days. But none of it appears to be helping Jesse Jackson Jr pull out of his mental funk.
–Asian stocks declined, in part due to disappointment with BoJ inaction. Nikkei declined for 6th straight day (-1.5%) and Hang Seng fell 2%. S Korea and Brazil cut rates.
–At these interest rates, the US markets are pricing economic stagnation. Not to belabor the point, but there is simply no way that pensions and endowments can make anywhere near target investment returns with tens at 1.5% unless stocks surge. QE focus has to be US equities…another 25 or 50 bp drop in tens is unlikely to provide any stimulus at all… Municipal bankruptcies are an indication the US is at risk of a negative feedback loop, perhaps not so much in terms of housing or other hard asset prices, but perhaps in the idea that current growth and tax prospects aren’t likely to keep pace with unfunded liabilities. And an aging population of consumers responds accordingly.
–Today’s news includes Jobless Claims, expected 375k and 30 year bond auction. Bond currently around 2.6% yield.

Posted on July 12, 2012 at 3:17 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply