June 6. Both inflation spreads and labor data suggest delay in tapering

–Such is the concern that income from the “wealth effect” must be “created” to keep the economy improving, that the merest hint of a correction sends yields lower.  Tens fell 4 bps to 209.5. Of course, data this week did nothing to convince policy makers that we’ve hit escape velocity, with ISM below 50 (49) and the employment component in non-mfg ISM the lowest of the year at 50.1…it started Jan at 57.5 and has declined every single month. If income isn’t being manufactured thru stocks then we have to hire fewer burger flippers, manicurists, etc…the trickle down effect. Beige report described the economy as modest to moderate.  ADP was weak as well, now it’s all about payrolls tomorrow.
–There were some large put sales in EDM4 (20k 95p, new) and EDU4 (10k 93p) on blocks, but straddles settled a bit lower than one can attribute to these sales.  For example, EDH6 9862^, the longest dated, had been bought up to 110 earlier in the week, was 109 bid in the morning, but settled 106.5.  The second that buyers lose their appetite, market makers are happy to mark down their short inventory.
–Again, I’m not even sure why I keep watching this, but I marked a new low for this calendar year in ten year vs tip spread at 220. The first quarter this spread was mostly 250-260.  If this spread does have bearing on inflation expectations, then the trend would suggest that QE tapering is a ways off.

Posted on June 6, 2013 at 5:49 am by alexmanzara · Permalink
In: Eurodollar Options

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