March 1. Bernanke comments cause markets to worry about QE3 prospects

–Gold and silver were crushed after Bernanke comments yesterday, with GCJ down $75 late. (GLD -9% and SLV -6.4%). Financial Times describes Bernanke as “downbeat” while WSJ said “cautious”. The market was apparently disappointed that QE3 wasn’t overtly touted. SPH had a key reversal, new high, outside day, close lower… but the range wasn’t very large. Everything that has rallied, (metals, stocks) can at least partially credit central bank money pumping. The ECB peaked yesterday with the LTRO, and the Fed is perceived as being reticent to stay full throttle. Inasmuch as the LTRO is successful at stabilizing european problems, the marginal bid for treasuries dissipates. Fiscal imbalances noted by BB is another factor that could make people wonder how the US is able to find funding at sub-2% ten yr rates.
–Tens closed just under 2% yesterday at 1.98, a rise of 5 bps. There was a large spike (100k) in TY volume in the wake of Fed’s released comments at 9:00 CST, and rumors of a “fat finger” error. In any event open interest in tens was up only 8300 contracts, while fives were -21k and bonds -18k as March positions are being pared down going into expiration. While US econ data has been better than expected of late, the liquidity fix is the main driver for addicted markets.
–The curve steepened as near eurodollar contracts rallied and backs fell. Red/gold up over 7 bps to 155.5. Implied vol was a bit firmer in treasuries and longer eurodollar contracts.
–Today’s US news includes another round of testimony by Bernanke. Jobless Claims expected 355k. Personal Income and Consumption +0.5 and +0.4 with Core PCE +0.2. ISM expected 54.6 from 54.1.

Posted on March 1, 2012 at 4:51 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply