June 26. Quarter end capitulation?

–New lows in gold and silver this morning with GCQ down 50 (around 1225) and SIN down over a dollar below 18.40.  Interest rate futures were lower last evening but have rebounded and now show modest gains.
–Yesterday tens rose a bit over 4 bps to 258.6. The curve made new highs with 2/10 to 218.5 and red/gold pack spread up nearly 3 bps to just over 258.  The peak one year spread, EDU15/EDU16, rose 2.5 bps to a new high of 106. Treasury auctions 5 yr notes today, followed by 7’s tomorrow.
–Nikkei is down 1% this morning.  From the high in May to the low in June, the Nikkei lost 22%.  It’s worth looking at some other equity markets as well.  Brazil has done nothing but decline since the beginning of the year, down over 28%!  The real and sudden damage has been done in Asia over the past month due to a shift in the Fed’s liquidity stance and a surge in China’s funding costs.  From highs in May to yesterday’s lows: Korea (KOSPI) -12%.  India (SENSEX) -9.7%. Hong Kong (HSI) -17.4%. China (SHCOMP) -20.7, but only -16% to yesterday’s close because of a huge bounce off the low.  It’s evaporation of capital in parts of the world that had been economic drivers. Using the term “transitory” to describe falling US inflation against this sort of backdrop is dubious at best.
–The real interest rate as expressed by the ten year inflation-indexed (TIP) note yield has soared this quarter, from around -80 in March to +60 now.  Massive move of nearly 1.5%. The start of the 3rd quarter end will likely coincide with a reaction back (or at the very least consolidation) of some of the extreme moves we’ve just witnessed.

Posted on June 26, 2013 at 5:40 am by alexmanzara · Permalink
In: Eurodollar Options

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