May 12. ‘Tis but a scratch

–Yields dipped slightly yesterday as auctions concluded with the (underwhelming) thirty year.  The ten year yield eased 1.4 bps to 239.8.  PPI was expected +0.2 but actually came out +0.5 with Core +0.4.  CPI today expected +0.2 both Headline and Core.  There is clearly an underlying bid for treasuries as bearish news is ignored.  However, in the front end there was a buyer of >100k EDZ7 9837/9825 put spread covered 9851 and 51.5 (settled 2.25 vs 52.5).  Retail Sales is also released today, expected +0.6 and +0.4 ex-auto and gas.  Obviously retailers have been getting crushed (ex-AMZN) and I saw a tweet that 30% of retailers’ profits come from store branded credit cards.  So charging 20% financing fees when libor is 1.2% is a good business?  Who could have guessed? I also saw that “…the market share of shadow banks in the mortgage market has nearly tripled from 14% to 38% from 2007-2015.” [link below]  It’s all fine until charge-offs begin to increase.  Oh, that’s happening as well…
–Volatility continues to grind along at extremely low levels.  May midcurve options expire today in eurodollars.
–An article in the WSJ exclaims that the Chines curve is beginning to invert with the ten year yield slightly below fives.  Industrial commodity prices collapsing and SHCOMP this week posted a new low for 2017 (though has seen a small bounce in the last 2 days).  The article notes that the Chinese market is reacting to a regulatory crackdown.  As the Black Knight would say, “It’s nothing but a flesh wound.”
https://www.gsb.stanford.edu/faculty-research/working-papers/fintech-regulatory-arbitrage-rise-shadow-banks

https://www.youtube.com/watch?v=zKhEw7nD9C4

 

Posted on May 12, 2017 at 5:30 am by alexmanzara · Permalink
In: Eurodollar Options

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