May 17. Curve flatter

Tremendous flattening in dollar curve Friday. Red/gold pack spread fell 8.5 bps to 263.  EDU10/EDU11 euro$ spread made a new low at 72.5 bps, down a whopping 14 bps on the day.  2/10 treasury spread fell only about 4 bps to 266.  Nearly all one yr spreads nearing 100 bps…(probably too low).
–Ten year yield tumbled 10 bps to 3.44%.  There was a seller of about 20k TYU 122c, a bit over 3 points out of the money. 
–Stocks were weaker but remain well above mini-crash levels of 2 weeks ago.  The catalyst for that move was apparently identified as having sold about 75k e-mini S&P’s…one would think that size order would hardly be catastrophic in a market that trades 3 million a day.
–It’s easy to get lost in the number of news stories about the euro, the oil spill, etc.  The central themes I am trying to bear in mind are 1) a lot of capital has been lost (oil spill, US banks to be sued by Greece, stock losses, investigations into US financial companies, europe).  2) gov’ts in nearly all industrialized countries have run large deficits to try to hold up the architecture of debt, and all of these efforts are fraying. 3) money is seeking safe haven from continued volatility.  Governments all over the world appear to be losing the fight for control of people and finance in a world where credit and confidence are the economic lubricants.  Safety in short treasuries and hard, unlevered assets.

Posted on May 17, 2010 at 4:08 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply