July 22. Economy “unusually uncertain”

July 22.  Bernanke says outlook for economy unusually uncertain.  Curve flattened, with red/green pack spread falling to new recent low of 82 bps.  In late 2008 I believe red/green got down to around 75 bps briefly, but it’s remarkable to see these spreads at such narrow levels in a low yield environment.  The highest one year spread is now EDZ11/EDZ12 at 83 bps. There continues to be buying of green midcurve structures.
–Today’s news includes Leading Indicators expected -0.2%.  Existing Home Sales expected 5.26M.  With a ten year yield of only 2.89%, the housing market has to be propped up due to low financing rates.  Doesn’t it? 
–Monetary policy has done about all that it can; uncertainty about regulation and unwillingness to write down assets and let the market clear appears to be prolonging problems in what is clearly an extremely accommodative environment.
–One month contracts don’t trade much, but it is a bit surprising to see EDU/EDZ spread at only 5 bps, while EMU/EDU (one month to three month spread) is around 14 bps.

Posted on July 31, 2010 at 8:58 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply