June 20. Nearing the summer solstice, the longest day of the year (for bond longs)

–After a long period of complacency, volatility has come back with a vengeance. Massive sell off in fixed income after Bernanke suggested tapering could begin, depending on data. The huge convexity vortex that Bruce Krasting had mentioned would kick in around 2.20 yield was right on target, as tens jumped over 12 bps to 2.30 by yesterday’s close, and are now 2.38, essentially at the high yield mark set in March 2012.  30 year bond yield at 3.45 is above the level seen in March 2012 (3.42).  All eurodollar calendars exploded to new highs, with red/gold pack spread up a whopping 23 bps to 241.
–Though global stock markets are getting rocked, it’s not providing much in the way of support for fixed income.  Gold is down over $60 to 1308 and has taken out the spike lows of April and May.
–HSBC China PMI was down to 48.3.  Stories on zerohedge this morning note that overnight repo rate surged to 25%.  Concerns about China appear to have been well founded; in the interconnected world of global finance I would suspect that funding issues will soon spill over into the front end of the US eurodollar curve. And yes, I mean EDU3, which is currently sitting like a duck at 99.695.  Copper, an important asset and financing vehicle in China, is down 7 cents this morning and nearing critical support around $3.
–A bunch of US data this morning, though I’m not sure it will mean anything.  Jobless Claims expected 340k, PMI 52.7, Existing Home Sales 5.0m, Leading Indicators +0.2 and Philly Fed expected -1.0 from -5.2.

Posted on June 20, 2013 at 5:00 am by alexmanzara · Permalink
In: Eurodollar Options

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