June 23.

As the Fed ends its 2-day FOMC there is a barrage of bad news about state budgets and cutbacks.  The UK just raised the VAT tax to 20% from 17.5%.  And May existing home sales data drives home the point that without gov’t subsidies housing and the economy in general is weak.  Rates are on hold. There is no mystery to the meeting though the market almost trades as if there could be another symbolic rise in the discount rate to appease chronic dissenter Hoenig.
–Stocks had a late day swoon, having broken back down through the 200 day moving average as the energy sector weakens.  I would guess the idea of an increased tax burden as every gov’t agency in the land desperately seeks revenue is sinking into the consciousness of the market. The front end of the eurodollar curve now weakens in knee jerk reaction to unstable financial markets; EDU0 settled down 2 bps at 9932.  As a result, one year calendar spreads made new lows, with EDU10/EDU11 below 1/2% at only 49.5 bps.  In spite of auctions (5 year note today) treasuries rose, based on a sluggish economy/safe haven dynamic. 
–The response of the shrinking private sector to gov’t fiscal and monetary kool-aid has been muted and now threatens to worsen as further gov’t spending looks untenable.  Ten year yield could easily reach 3%, soon.
–New Home Sales today expected 400k.

Posted on June 27, 2010 at 1:09 pm by alexmanzara · Permalink
In: Eurodollar Options

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