May 23. Five year auction today provides safety and liquidity

–Yesterday I suggested we might have a possible turnaround Tuesday, which occurred on a very modest scale.  After posting a new contract high early, July Crude settled down 15 cents at 72.20.  ESM8 settled down 7.00 at 2726.00.   This morning, these moves have been accentuated, with ESM down ~20 and Crude down ~50 cents. Russell was the leader to the downside yesterday, -0.75%, after having outperformed on the recent run-up.
–Turkish lira is continuing its slide this morning.  Note that Turkey is listed as the 17th largest economy in the world at $850 billion.  Yesterday late TRY was 4.673 and last at 4.859.  The Italian bank index is also pressing new recent lows, as is DB, last at €10.84.
–Rate futures were very quiet, with the eurodollar strip pretty much unchanged.  Fed Effective has been 1.70 all week.  EM FX stabilized, except for Turkey as noted above.  Italy/ Germany 10 year yield spread declined slightly.  The pause that refreshes.
–Today’s news includes 5 year treasury auction.  Markit PMI is out, as is New Home Sales.  FOMC minutes from May also released.  Beware of discussions about language change in the next statement regarding whether rates are accommodative or moving toward restraint.  As an aside regarding rate changes, Grant’s Daily notes that “The Dept of Education announced Friday that starting July 1, undergrad federal student loan interest rates are set to jump to 5.05% from the current 4.45%.”  I don’t know if that affects outstanding debt (of which there’s $1.3T).
–Seeing a modest flight to safety into treasuries this morning and bias toward flattening.
Posted on May 23, 2018 at 5:09 am by alexmanzara · Permalink
In: Eurodollar Options

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