March 28. Bonds are showing cracks…

–Huge amount of treasury put buying Friday, about 25k TYJ 119p associated with April option expiration, but more notably, new position buys in TYK 117p …total 80K trade. The sell off, (red euro$ pack -9.125) was mostly a result of Plosser’s comments outlining a plan for an exit strategy combining asset sales with a rise in the funds rate to 2.5%.  However, the big picture is also unfriendly to bonds, as every day brings us closer to the end of QE2, inflation in basic living goods as energy continues to rise, and sovereign bonds the world over are thought to require higher rates to compensate for risks inherent in austerity versus tax increases related to servicing public debt.
–In the UK, an anti-austerity march had some rioting mixed in.  In Ireland, haircuts to senior bondholders was proposed.  In Germany, Merkel’s party lost a state election in Baden-Wuerttemberg, at least partially as a protest against nuclear power.  The situation in europe generally seems to be fraying at the edges, and the IMF is taking steps to increase its footprint. (More liquidity helps stocks).
–The Japanese situation is also getting worse, or at least does not seem to be contained.  The Middle East upheaval jumps from country to country, with Obama slated to explain US involvement on the heels of Sec’y Gates saying Libya was not “a vital interest for the US.” This last is taken somewhat out of context, but still reflects uncertainty. Large cap US stocks have become the safe haven.

Posted on March 28, 2011 at 5:32 am by alexmanzara · Permalink
In: Eurodollar Options

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