May 10. Gov’t end game

Talk of a liquidity package from the ECB and the Fed re-instituting dollar swaps helped to stabilize markets.  Near eurodollar contracts were able to bounce back with EDM0 up 6 on the day, but at 99.35 (or 65 bps) still about 18 bps below the current libor setting.

–High frequency trading is being blamed for some of last week’s mini crash.  In a world of huge government deficits in every western country, the simple political solution will be a financial transaction tax…not good for exchanges and dealers, (though the CME and ICE remain stubbornly bid).

–It feels as though the world is getting a little closer to the end game in terms of gov’t action to solve problems.  The idea of massive liquidity injections is not only running into technical problems in Europe, but here in the US as well. Calls to audit the Federal Reserve will only grow more strident as the US takes action to alleviate the funding problems of european banks.  Alan Grayson (D-FL) is among the most vocal calling for an audit of the Fed, and that’s mostly due to investigation of Maiden Lane assets, which he colorfully disclosed contain a large chunk of the Red Roof Inn hotel chain. The idea of helping non-US banks will only galvanize these efforts. Also, voters around the world are tired of the idea of government bailouts and the idea of more taxes.  For example, Merkel’s coalition lost a state vote in Germany over the weekend.   

–Treasury auctions 3’s, 10’s and 30’s this week.

Posted on May 9, 2010 at 3:02 pm by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply