March 12. Honking the horn

–Eurodollars were mostly unchanged Wednesday, but treasury yields dipped, going into and coming out of the ten year auction.  Ten year yield fell almost 2 bps to 211.
–There’s a story in the FT noting that dollar strength is creating a dilemma for the Fed as it prepares to hike.  The dollar index is going parabolic as the euro crashes, and central banks around the world continue to cut rates, South Korea having done so today. (“You’re going the WRONG way!”  “How do they know where we’re going?”). The Korean won, unsurprisingly made a new low against the dollar but has stabilized.  There was a late buyer of 50k EDM5 at 9960.5 yesterday; perhaps the Fed’s hands are tied and can’t get to the steering wheel, like Del Griffith.
–The Fed announced stress test results and major banks promptly said they were returning money to shareholders through dividends and stock buybacks.  Stock buybacks by JPM, MS, BAC, Citi.  I know nothing about what exactly drives those decisions, except that other companies are also doing it, in order to retire shares and therefore increase earnings per share metrics on the remaining.  It reminds me of a Seinfeld skit, where he says, “How about the guy who sees an attractive woman walking past and he honks the horn?  Now there’s a guy who has run out of ideas…”  I can’t help but think that’s where the banks are.  In an environment with a positive yield curve, respectable GDP growth, where banks can borrow for nothing and lend with a good cushion, and ALSO get paid by the Fed for excess reserves, the best idea they can come up with to build value is to buy back shares.  All I can see is a moron beeping the horn.

Posted on March 12, 2015 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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