July 26. Negotiations stall, leading to an economic disaster? Yup, that’s Chicago…

–Yields closed the day a bit higher with tens up 2 bps to 239, even as Greek and Chicago Teacher’s Union talks stalled.  Twin economic disasters, but I’d rather negotiate with the Greeks.  Perhaps more importantly, US equities are starting to slip.  Though there was a lot of coverage given to the surge in healthcare stocks as Obamacare held up to a Supreme Court challenge, the Dow Jones Transports closed at a new low for the year.  The Dow Jones Composite isn’t quite at new lows, but it’s close.  And of course the Shanghai Composite continues to flare out, down 7.4%.   The easy assumption today is that US fixed income will maintain a bid as fears of failure in Greece dominate.  However, the long end of the market continues to struggle.  It’s July treasury option expiration today, and while there have been some buyers of the 126 strike, tens look to peg 125.5.  (The July, today’s expiry, 125.5^ settled 21/64’s).  But beware of the possibility of USU breaking through the 149 strike.
–There was a time, I think back in 2013, when green midcurve straddles were higher in absolute price than blues and golds as tightening fears first gripped the market.  Recently all the blue midcurve atm straddles have traded 2 higher than greens, and now more like 3.  For example, Green Sept 9800 straddle settled 34.5 while Blue Sept 9750 settled 37.5.  Gold Sept, (5th year out) settled 39.0, 4.5 over the green.  Seems a bit high to me, but given a gradual pace of expected tightening and weakness in the long end of the curve, it makes sense.
–From BBG today on EZ lending:  “Bank loans to companies and households increased 0.5 percent in May from a year earlier, the most since February 2012, European Central Bank data showed on Friday. Loans posted annual declines every month from May 2012 until February 2015.”  Signs of improvement…

Posted on June 26, 2015 at 5:24 am by alexmanzara · Permalink
In: Eurodollar Options

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