July 9. Profit taking on Monday after yield surge

–Solid bounce Monday after Friday’s drubbing of the long end.  Ten year note fell about 6.5 bps to 2.645.  Treasury auctions 3 yrs today, followed by tens and bonds Wed and Thursday.  Curve flattened slightly relative to Friday’s surge, red/gold pack spread narrowed nearly 6 bps to 281.
–The auctions this week are important to determine whether much higher yields in the long end will attract buyers.
–EDZ14 (second red) actually erased all of Friday’s loss and closed up 7 at 9928, exactly where it settled last Wednesday (prior to 4th of July holiday).  All following contracts remain lower.  Near contracts (out to a year) are not pricing tightening fears.  In that sense, the Fed has conveyed its message that tapering isn’t really about tightening, but more about normalization.  However, with the Fed having done everything possible to force curve flattening, it’s not so surprising that the change in strategy, even though it might be marginal, created such a large response.
–Consumer Credit for May was released yesterday afternoon, up a huge $19.6B.  Even revolving credit showed strong gains.
–In eurodollar options there was liquidation of some large positions, buying back shorts in 0EU 9950/9925p spreads (20k) and 0EH 9950/9925p spreads (60k) to sell Green March 2EH 9887/9862 and 9887/9850p spds.  Open interest in 2EH 9887p fell by 64k.  Right along with general theme…profit taking on steepeners.

Posted on July 9, 2013 at 5:48 am by alexmanzara · Permalink
In: Eurodollar Options

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