May 25. Big money happy to let SNB bail them out of EUR positions
–The euro had a bad day yesterday (low 125.14), though it’s rebounding slightly this morning. FT internet edition leads off with the headline “Big European funds dump euro assets.” Underlying sentiment couldn’t be more obvious than the reaction to SNB intervention: EUR/CHF spiked up to 120.76 in about twenty minutes, but by the end of the day was right back down to its previous level of 120.14. Another headline says “Bankia prepares to request more state aid” showing continued deterioration in Spain’s banking system. Interestingly US stocks have shrugged off the last leg of euro weakness and have rallied nicely. The US curve is also steepening, with red/gold up over 6.5 bps to 134.5.
–June/Sept roll in treasuries began in earnest yesterday as TY spread traded a big chunk from 32.25 down to 30.5. There were some rumors of an error, but in any event TYM open int fell 257k and TYU was up 273k. Still plenty to go with TYM having 1.855m open; TYM options expire today.
–Eurodollar and treasury implied vol both pressured yesterday. TYU straddle sold from 246 to 243. There was selling in Green June midcurve straddle at 9.5 and in Blue June 9875^ (underlying 9873.5) at 14.5 just before the end of the day with three weeks to go. Seems cheap given that the period covers unemployment and the euro is still in flux, though FOMC occurs right after expiration.
–Floor closes early today for 3 day weekend!
–Just a bit of local color to show that budget problems appear to be the same the world over (politicians desperately trying to raise taxes/fees to cover outlandish promises and benefits). Two clips from this mornings Chicago Tribune: “An investigation shows how at a time when the state has $8 billion in unpaid bills and is cutting funding for services, Illinois is sending out ever larger retirement checks to former lawmakers who have reaped millions by manipulating the state’s pension code.” EIGHT BILLION IN UNPAID BILLS!! And… “Mayor Rahm Emanuel billed his soon-to-be-launched speed camera program as being about child safety and not raising cash, but a new Tribune/WGN-TV poll shows most Chicago voters are skeptical of the mayor’s rationale and don’t want the devices.”…because more voters think its about raising revenue.
