March 20. Yellen defines “considerable period” as 6 months, Draghi does face-plant

–I didn’t think the dots mattered that much.  I was wrong.  From Reuters…”Yellen’s remarks at her first news conference as the head of the central bank pointed to a more aggressive path toward higher interest rates than many had anticipated, and bets in financial markets shifted accordingly.”  The dots shifted higher for 2016 even as the upper band for economic projections was lowered by 2/10ths, sending the green euro$ pack down 23.25.  Red/green spread gained nearly 10 bps, though even reds plunged 13.625 as initial rate hike expectations moved forward. Red/gold was up only 1.5 to 265.5 as the carnage was centered in greens and blues. Five year treasury yield jumped 15, but 30 year bond yield rose only 4, sending 5/30 spread to 197, the lowest in a year and a half.  All near euro$ one year calendars made new recent highs, with EDH5/6 gaining the most, up 15 to 96.5.  Peak is now EDU5/EDU16 at 112.5, same as EDZ5/6.  Recall highest one year spread last year was 122.5.
–From ZH citing Soc Gen: “Erratic dot movements + vague guidance = more rate volatility”.  Tym 123.5^ closed 2’04 or 5.0 vol.  TYM 122.5/126 strangle that had been heavily sold 52 to 48 settled 54.  That seller will probably continue, but move to lower strikes.  FVM straddle at 3.2, equaling its recent high.
–CNY nearly 6.23 this morning as China’s currency chart is beginning to resemble Japan’s initial devaluation from a year and a half ago.  Copper had a wild reversal off a plunge to new lows yesterday and closed stronger, but as of this writing is -4 to 294.60.  We’ll see if this new palpable threat of US tightening exposes fresh cracks in EM.
–US data today includes Job Claims expected 325k, Philly Fed 3.0, Existing Homes 4.60m rate, and Leading Indicators +0.3.

Posted on March 20, 2014 at 5:13 am by alexmanzara · Permalink
In: Eurodollar Options

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