June 28. Mush

–Here’s a nice summary of yesterday from Bloomberg: “While Yellen qualified her assessment that asset valuations look high by some measures, the note of caution came just as markets were buffeted by a series of events, including an IMF cut to its U.S. growth forecast, Google suffering the biggest ever EU antitrust fine, a fresh blow to the Republican agenda in Washington [health care vote stalled] and a global cyberattack.”  I would add that Draghi’s hawkish comments in the morning initially caught the market out.

–Yesterday I noted that some commentators thought the Fed’s emphasis was shifting from employment and inflation to financial conditions.  Fischer solidified that idea, saying there’s been “a noteable uptick in risk appetites” and that high asset prices could lead to stability risks, adding that the corporate sector was significantly leveraged.  The net effect was selling pressure in both fixed income and stocks.  This is probably not the time for knee-jerk buys of bonds as stocks weaken further; the dynamic appears to be changing, both assets could decline simultaneously.   Euro broke out to the upside.

–Eurodollar spreads bounced as the curve steepened.  EDZ7/EDZ8 rose 3 bps to 29.  Implied volatility also firmed marginally in a nod to the sell off, with tens rising

6.3 bps to 219.8.  TYU 126.5 straddle settled at 1’40 (the offered side) right at 4.0 vol.  VIX also firmed from its sub-10 close yesterday, ending at 11.02.

–Yellen yesterday said ‘there will be no new financial crises in our lifetime’ and Trump has tied his success to the value of equities.  “We been mushed.”  Yellen will be lucky to get out of chairmanship without a crisis.

Posted on June 28, 2017 at 5:29 am by alexmanzara · Permalink
In: Eurodollar Options

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