July 22.
July 22. As the financial crisis unfolded, steps taken by the US government transformed impaired private assets into taxpayer obligations. The EU appears to be moving down this same path in backstopping peripheral state debt held by financial institutions (agreeing yesterday to a new increased Greek bailout). With US debt ceiling negotiations, the outcome is likely to be at least some fiscal retrenchment; perhaps a move toward less gov’t influence. While EUR/USD staged a relief rally, is this really long term positive for the euro? In the bigger picture it’s probably more positive for gold and oil.
–Eurodollar curve steepened yesterday with red/gold pack spread up about 6 bps. Treasury yields rose and implied vol on TY and US was up slightly. Volume in eurodollars was light, open interest was down another 31k in futures. Option trading appears to be mostly position unwinding.
