May 13. US rates jump Friday, Japan yields surging

–US rates jumped Friday on big volume, with tens up 9 bps to 1.90. Curve made new highs.  2/10 rose a bit over 7 bps to 166 and red/gold euro$ pack spread was up a stunning 12.5 bps to 171. The rumored Hilsenrath tapering article came out late Friday: Fed Maps Exit From Stimulus.  Now we can interpret what the Fed meant by saying it might increase or reduce QE, a heavy tilt toward the latter.  What’s somewhat surprising about Friday’s sell off is change in open interest.  While huge volume would suggest new entrants on the short side, tens registered an increase of only  1300 contracts, while five yr open interest actually fell 40k and bonds were down 17k.  More suggestive of long liquidation rather than a change of trend?  However, euro$’s were up 46k, mostly in greens, and implied vol rose smartly, indicating fear to the downside. Given that even junk bonds recently fell below 5% yield, it’s safe to say that everyone who wanted/needed to chase those few extra basis points got them, and are now looking around to see that no one else is behind them.  Just like Will Ferrell streaking in Old School.
–The G7’s green light for Japanese devaluation saw JGB yields leap higher, now at 78 bps (up 9). A pullback in US stimulus while the ECB is following Japan’s lead is a positive for the dollar and probably not so supportive of US stocks.
–Retail Sales today expected -0.3 from -0.4 last.  Less autos and gas expected +0.4.

Posted on May 13, 2013 at 5:48 am by alexmanzara · Permalink
In: Eurodollar Options

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