March 23. “How did you go bankrupt?” Two ways. Gradually, then suddenly.”

–Having absorbed the heavy selling in the front end Thursday, interest rate futures resumed their rally Friday.  Ten year note yield fell further below 2%, falling 4.5 bps to 193.  The peak one-year eurodollar spread, Sept’15 to Sept’16, fell 4 bps to a new low of 76.5, having settled as high as 95 on the last employment report.  Red/Green euro$ pack spread settled at a new low just barely above 1/2%, at 54.25.   2/10 treasury spread also made a new low of 134.6, down 3.5 on the day.
–Price action was a bit odd last week.  Huge rally in rate futures after the FOMC, as several shops pushed back the timing (to never) for eventual lift-off in light of Yellen’s dovish press conference.  There was a brief mad scramble to cover euro shorts, and oil had a key reversal, (new low, outside day, closed higher).  But the dominant trade Thursday was huge selling in the front end of the dollar curve rumored to be a west coast account, who apparently disagreed with a delayed lift-off schedule, leading to renewed dollar strength, a pullback in stocks, etc.  On Friday, those who had pushed back the timing of tightening, pushed back in the market, more than erasing Thursday’s sell off.  The 30 year bond contract made a new high for the month of March, and the dollar again weakened.  The eurodollar curve is reflecting a very subdued pace of tightening…
–Headline from Bloomberg over the weekend, “Tspiris warns Merkel of ‘impossible’ debt”.  That’s funny, why would foreign leaders be discussing Chicago’s finances?  Fitch downgraded the Chicago Board of Education on Friday to BBB-, triggering penalties of $228 million.  Earlier in March Moody’s downgraded the Chicago Park District, and of course in late February the city’s general obligation bonds were downgraded.  As a friend of mine likes to quote, Ernest Hemingway when asked, “How did you go bankrupt?” Two ways. Gradually, then suddenly.”
–Stanley Fischer speaks today…

Posted on March 23, 2015 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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