March 15. Let’s stop all the negativity…

–Continued modest flattening bias in US rates in front of tomorrow’s Fed decision.  For example, 2/10 treasury spread eased 2 bps to 100.1, with the ten year yield falling 1.4 to 196.1.  With the expiration of March eurodollar contracts, I switched to June for packs, and the red/gold pack spread fell 1.875 to 73.5 bps.  Gold and silver had big reversal days yesterday, with silver posting a new high early in the day and then closing lower on an outside day.  Oil was weak as well, as Russia supported Iran’s position of not being bound by production caps.  As of this writing CLJ -87 cents to 36.31; it had traded as high as 39 on Thursday.  While higher oil prices have helped the energy sector, there were several articles on revolving credit lines to energy and exploration firms being slashed at semi-annual reviews, notably Whiting, which is expecting a cut of $1.2 billion, over 40%.  The point is that a reduction in credit facilities operates with a lag, and pressure on the sector may continue.

–Volume in rates was quite light yesterday.  BoJ kept steady policy, but removed language that it would cut rates further into negative territory if needed.  Yen has rallied as a result, with $/yen just above 113.  Perhaps the most important bullet point: KIUCHI SAID NEGATIVE RATES IMPAIR FUNCTION OF FINANCIAL MARKETS.  This viewpoint appears to be garnering more traction among global central bank officials.  (Though I don’t know how BoJ purchases of 3.3T yen in ETFs could be termed part of normally functioning markets).  Interesting link yesterday says that Horseman Capital thinks a Japanese banking crisis will be the next shock that spills over into global markets.
–US news today includes Retail Sales, expected -0.2, or +0.2 ex-auto and gas.  PPI expected -0.2 with Core +0.1.  Empire Mfg -10.5.

Posted on March 15, 2016 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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