May 3. Terrorist scare in NYC. Worsening oil spill.

Intererst rate futures rallied as stocks sold off.  Buffett’s comments over the weekend supporting GS are likely to help stocks, as is the IMF package to Greece.  However, negative factors include the the disastrous oil spill, the defused car bomb in Times Square, China’s increase in bank resserve ratios. A theme of “big is bad” seems to be emerging (GS, BP) likely to be fueled by populist rhetoric associated with upcoming elections.

–Almost all calendar spreads made new lows in euro$’s as the curve flattened and flight to quality buying gained strength.  Red/green pack sprd made a new low of just under 110 bps, down 4.75 bps on the day. 

–A couple of open interest notes:  There’s 147k open in TYM 119c (largest OI).  ALL July TY calls have just under 16k open. Perhaps it won’t matter whether or not call/strangle seller rolls shorts into July or Sept given 1.7m TY fututes OI…but I do think there has been some weight on TY associated with call selling that’s now conspicuous by its absence.  There’s 114k in TYU calls, because of the guy with 50k long 121/122 c spreads.

–Greek package has a chance to lessen a libor squeeze.  With 43 days left until expiration in EDM10, market makers have been hesitant to show put offers.  Dramatic surge in short term govt yields of Portugal, Spain, etc last week highlight possible funding risks for european banks.

–At the end of 2007, Crude oil was about where it is right now…85ish.  Through 2008, crude exploded to reach $140bbl.  It was really in the latter half of 2008 that stocks began their harrowing descent.  I don’t know that oil could see a rally similar to early 2008, but that wasn’t a time of surging final demand either.  I also don’t know how much the oil rally fed into subsequent stock losses. But ramifications of BP’s oil spill are likely to 1) create large problems for offshore drilling 2) punch further holes in the US budget 3) raise problems for “big business”. 

NOTES:

ZeroHedge: Washington simply cannot understand why it can’t destroy speculation and leverage yet keep the equity market up, as it is the only economic driver in the US since easy credit is no longer available. (I think Nic Lenoir from ICAP)

Some notes from Prudent Bear/Bloomberg:

Greek debt contagion took a dramatic turn for the worst this past week, with Credit default markets dislocating Tuesday.  Two-year Portuguese government yields jumped 104 bps Monday to 3.97% and then spiked above 5% in Tuesday’s rapidly escalating market crisis.  After beginning the month at 1.58%, Portugal’s two-year government yields traded Wednesday as high as 5.93%.   At the worst of the week’s dislocation, Portuguese Credit default protection jumped to 450 bps, after starting April at 144 bps.  Ireland’s two-year government yields surged as high as 4.28%, up from last Friday’s 2.34%.  Yields in Spain jumped above 2.3%, after ending last week at 1.70%.  Italian two-year yields also jumped as much at 50 bps from the previous Friday’s level to approach 2.0%.  It is certainly worth mentioning that Greek two-year yields rose above 18% Wednesday, before ending the week at 12.67% (after beginning the year at 4%).

FEEDING INTO DOLLAR FUNDING SQUEEZE?

Posted on May 2, 2010 at 1:07 pm by alexmanzara · Permalink
In: Eurodollar Options

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