May 23. Bernanke hints at pullback; Japan unhinged.

–Extraordinary volume associated with yesterday’s sell off in US treasuries.  Tens trade 3.1 million and euro$ 4.4.  While Bernanke warned that less accommodation would  “carry a substantial risk of slowing or ending the economic recovery”, he also said the Fed could start reducing bond buying “in the next few meetings”. The mere hint of a pullback by the market’s biggest sponsor sent bonds into a tailspin, with tens up 8 bps to 202.5.  Curve steepened with 2/10 up 7.5 to new high over 178.  All euro$ calendars made new highs  It was March 19 of last year when red/gold hit 203 and 2/10 got to 200 (now 186 and 178).  But that’s when it appeared the economy was taking off; this has a different feel, more about panicky yield-reach reassessment, which had been predicated largely on central bank policies.  Looks like it can get quite a bit more volatile.  Treasury implieds at upper end of recent range with TYU at 4.5, but likely to push higher.
–Japan’s 10-year yield increased nine basis points to 0.975 percent as of 9:28 a.m. in Tokyo, according to Japan Bond Trading Co. But now all the way back to 83 as the Nikkei plunged 7.3% pulling global stocks lower in its wake.  Perhaps unsurprisingly it’s Japan that is the first one to spin out of control.  JPY -1.6% now to 101.50. No help from China as HSBC PMI flash fell below 50 to 49.6.
–Today’s US news includes Jobless Claims 345k, New Home Sales 425k and PMI flash expected 50.8.
–Red/green pack spread up 4.5 bps but green/blue +5.625 and blue/gold up only 2.  Market still appears to judge 2015 as the pivotal time for policy change, but these perceptions can get quite a bit looser going forward.

Posted on May 23, 2013 at 5:33 am by alexmanzara · Permalink
In: Eurodollar Options

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