July 27.
July 27. Concerns over the debt ceiling impasse are only being reflected in gold strength and dollar weakness. Treasury yields fell again with the five year note falling 4 bps to 1.48% (auction in that maturity today). Red/green eurodollar pack spread made a new low of only 83 bps, which is the lowest of this calendar year. In 2010 in late July and August red/green also had fallen to this level, ultimately going as low as 52 in November.
–Large trade notes from yesterday: There was a seller of 20k TYU 124 stradddle on a block trade at 222 which traded 226 in the pit before the block info was posted. (atm 124.5^ settled 216). Appears to be new position. Ten year vol was off a couple of tenths as a result, but Sept bond vol firmed as a buyer came in late for Sept 124/125 strangle from 334 to 338. (Cover). Also in green Dec euro$ midcurve there was a buyer of 9875/9900/9925c fly 1x3x2 for 1 bp in size of 35k. (new).
–This morning Italy and Spain are widening to Germany on comments from a finance minister, ‘will not give carte blanche’ to secondary purchases of bonds by the EFSF.
–There are a couple of articles on the job situation in the US. NYT piece notes that many employers are shunning candidates that have been out of work for several months. WSJ headline is “What’s wrong with the American job engine.”
–Today’s news includes Durables expected +1.0 from +1.9. Beige Book this afternoon.
–Strange price action yesterday with treasuries higher in a flattening curve, stocks generally firm, dollar index making new lows, all against the backdrop of tense budget negotiations. I think the dollar is partially concerned about the debt ceiling, and partially about a slowing economy. Bonds rally due to fears of renewed slowing in the economy, which is also signaled by the fall in deferred euro$ calendar spreads like red/green. Stocks like a weaker dollar. For example, AAPL gets 62% of revenues overseas…new high in the stock yesterday.
