May 17. Portugal bailout package approved

–The rally in interest rate futures continued as stocks sold off and crude oil slid (down $2.60 bbl late).  I marked ten year treasury to tip spread at a new recent low of 240 bps (though the Fed was buying TIPs yesterday as part of POMO).  Eurodollar one year calendar spreads pressed to new lows, the highest is still EDM12/EDM13, down another 2.5 bps to 108. EDM1/EDM2 is only 48 bps, less than 1/2%.
–Overall volume was quiet on Monday.  There is still a buyer of Green midcurve call spreads (+30k E2U 9825/9862c 1×2’s, settled 6.5) and a seller of TYU 121 straddles down to 310.
–Today’s news includes Ind production expected +0.4% and Capacity 77.6.
–There was an article on zerohedge about Chinese bill auctions being undersubscribed as a result of the PBoC having raised reserve requirements repeatedly recently.  Not sure how much this has to do with US stock sell off but the Shanghai Composite looks vulnerable, and tightened liquidity conditions are felt globally in this environment.
–A Japanese official suggested that bondholders write off some of the loans made to Tepco before the disaster, in order to minimize taxpayers’ burden. Banks bristled at the suggestion. In the rest of the world, the disaster was bad lending on housing, but the final analysis is similar.  How much should private bondholders be impaired when an imploded company/system creates a burden on taxpayers as if it was nationalized?  And how much will lending be restrained as a result in the future?
–Now a bit of local news.  Rahm Emanuel was sworn in as mayor of Chicago yesterday, with VP Joe Biden at his side.  Ever since news got out that the VP wasn’t considered a terrorism target by the Taliban, he’s been in great demand as an extra security measure in public appearances.

Posted on May 17, 2011 at 5:23 am by alexmanzara · Permalink
In: Eurodollar Options

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