July 9. Near ED contracts signal lower LIBOR

July 9.  Near eurodollar contracts continued to rise.  July 3-month contract (EDN0) settled 99.4775, a rate below yesterday’s 3 month Libor setting of 53 bps.  EDZ0 was the strongest contract, up 3.5 on the day.  It appears as if there was a significant amount of liquidation in Sept/Dec/March butterfly which has traded from +2.0 to -2.5 in the space of a week. 
–Ten year yield moved back above 3% as the curve steepened, though tens move lower only grudgingly in spite of stronger stocks, higher grain prices, and next week’s auctions.
–Though not normally considered an important data release, yesterday afternoon’s Consumer Credit report was still stunning, showing a drop of $9.1 billion vs expectation of a small rise.  On top of that, the previous month was revised down from a positive number to -$14.9 billion!!!  A stark decline of $25 billion in two months.  The absolute antithesis of a robust consumer.
–Stocks were able to close above the 50% retracement level of the recent sell off.  The “risk-on” market environment almost feels like a precursor of a new Fed announcement for renewed stimulus/liquidity support (which would explain the bid in the front end, and the rally in equities).

Posted on July 31, 2010 at 8:46 am by alexmanzara · Permalink
In: Eurodollar Options

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