July 15. FOMC minutes indicate risk of slowing

July 15.  Spirited rally in fixed income, spurred by weaker than expected Retail Sales at -0.5 vs expected -0.2%.  FOMC minutes indicated rising risks of a slowing economy. 
–Another new low in EDU10/EDZ10 spread at 6 bps, down 1 on the day.
–A long time ago on the trading floor, a month eurodollar broker came up to our desk and said “I’ve been watching this red sept pretty closely, and it can’t possibly go much higher than it is now.”  Of course it was an instantaneous buy signal and didn’t look back for a couple of days.  We are in that type of market now, where disbelieving shorts stretch the market past reason.  True that EDU11 below a rate of 1% seems ridiculous, but still it grinds higher. And buyers are moving to longer maturities where the number of bps to absolute zero is greater.
–For the past two sessions there has been significant buying of midcurve Green call structures,  This represents a reach for yield and expectations of a slowing economy for some time to come.  EDH11/EDH12 spread declined by 6 bs to 73.5. 
–Today’s news includes PPI expected -0.1 with Core +0.1.  Job Claims expected 445k.  Empire State Survey 18.0 vs 19.57 last.  Capacity Utilization expected 74.1. Philly Fed expected +10.0 vs +8.0 last.

Posted on July 31, 2010 at 8:51 am by alexmanzara · Permalink
In: Eurodollar Options

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