May 24. Concerns about europe’s debt problems dominate trade…

— US interest rate futures settled mixed Monday, as a stronger open faded.  The main feature was a flatter curve with red/gold pack spread down 4 bps to around 104.  Trading flows supported a flattening theme.  Large buyer of EDN 9962/9937p spread for 2.5.  Notable buying in green midcurve calls.  For example, E2N (July expiry with EDU13 underlying) 9850c were bought for 3 bps in good size.  E2U 9900c were bought for 1 in size of at least 40k on the day…appears to be a trade which caps off risk on existing long 9837/9862c 1×2’s.
–Today’s news features New Home Sales, 2 year note auction, and several Fed speakers.  However, an undercurrent of unease related to european debt issues is unlikely to be assuaged by officials of the US Fed.
–Each passing day brings us closer to the end of QE2, (and some would say nearer to the beginning of QEnth).  Stocks are reflecting a degree of uncertainty as the dollar rallies, removing an underpinning of US equity strength.  The old adage of “sell in May” seems to be right on target this year.
–EDM1/EDU1 spread edged to a new high of 6.75.  June/Sept/Dec butterfly is -0.25, while Sept/Dec/March is -4.5.  EDU1 is the weak contract and appears to be most closely linked to the possibility of bank funding concerns.

Posted on May 23, 2011 at 7:00 pm by alexmanzara · Permalink
In: Eurodollar Options

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