March 17. Japan worsening

–Japan’s situation deteriorating further, with Germany’s Merkel calling it “apocalyptic”, though yen is staging a huge run up, apparently the result of carry trades being unwound.
–US interest rates plunged.  Eurodollar calendar spreads narrowed further. Last week EDZ11/EDZ12 was 132.5 at its high, yesterday settled 101.  Implied vol has exploded.  At the money June Five Yr straddle was below 2 points last week, settled yesterday at 2-14. Ten year note could revisit 3%, now around 3 3/16%.
–The very front end of the curve closed slightly lower, with EDM1 -2.0 at 99.61, portending funding pressure.
–Though the catastrophe in Japan’s nuclear plants dominates all else, there is quite a bit of news in the US today.  CPI headline expected +0.4 with +0.1 Core. Job Claims 385k, Ind Prod +0.6, Philly Fed 32.
–Market dislocations are met, as always, with central bank liquidity measures.  This is a particularly sensitive time, as energy sources and food supplies are no longer taken for granted.  Inflation expectations could easily rachet higher.  I can also see the possibility of government price controls on foods, and elimination of all food based ETFs.
— From BBG: ‘Biblical Exodus’ From Africa Feeds Anti-Immigrant Rhetoric.  This article concerns North African refugees going to Italy, but the idea of “biblical” events shaking the world’s confidence is looming.

Posted on March 17, 2011 at 4:02 am by alexmanzara · Permalink
In: Eurodollar Options

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