June 20. German rates now converging higher to meet peripherals…

–  “When a management with a reputation of brilliance tackles a business with a reputation for bad economics, it is the reputation of the BUSINESS that remains intact.” – Warren Buffett
–Germany has a reputation for low inflation and monetary discipline.  Peripheral countries are seen at the other end of the spectrum. There were several stories circulating yesterday that Merkel’s resistance to German support for the EFSF was fading, i.e. that Germany was preparing to tackle the bad economics of the south.  Whether true or not, the market seized the idea and ran with it by pushing German yields significantly higher.  Bunds were lower by 1 1/4 points, to levels not seen since mid-May. This trade already had legs: since the low yield on June 1 of 1.17, the bund yield has jumped to 1.53 as of yesterday.  [1.63 this morning, 20-June]. No worries though, there are also plans to outlaw ratings agencies, so no one is likely to notice further financial deterioration. (Unless they watch bond yields).
–FOMC announcement at 12:30 EST, followed by new economic projections and a press conference.  Trade in interest rate futures yesterday was dominated by call buying on EDU12 underlying, mostly of the 99.625 strike.  Clearly the market expects the Fed to do SOMETHING, even though its efforts at lowering unemployment have run out of steam.  On the longer end of the US curve, rates edged higher.  Tens rose 3 bps to 1.62 as US stocks rallied, lured by the sirens call of endless liquidity.

Posted on June 20, 2012 at 9:23 am by alexmanzara · Permalink
In: Eurodollar Options

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