May 4. Five year note below 2%?

May 4.  US yields remain remarkably low and are edging even lower, with the 2 year note at only 59 bps and tens at 3.25%.  The backdrop could be the beginning of a leveraged commodity washout, with silver, having neared $50, down almost 20% in a couple of days.
–I marked 2/10 treasury spread at a new recent low of 266 bps, and ten yr treasury to tip at the lower end of recent range at 257 bps.  The widest one year eurodollar calendar spread is only 116 bps, (EDM2/EDM3).  If the Fed is watching these spreads as indicators of inflation, then they have nothing to worry about.  But I know that I spent $1.74 for peanut M&M’s the other day, and that, along with super low treasury rates, makes me feel uneasy about the state of the US economy and markets.  To quote Louis Winthorpe III, “Pork bellies! I have a hunch something exciting is going to happen in the pork belly market this morning.”  But it’s not just the bellies, it’s the way the whole market structure is hanging together, and it’s not “exciting” in a good way, but more like the way Winthorpe’s life is turned upside down by the Dukes. While it’s been a couple of years since the nadir of the crisis, and things have gotten better with massive gov’t stimulus, it still doesn’t seem that the organic spark of the private sector has quite caught fire, (except for paper assets, and events like gov’t actions against Deutsche Bank may yet derail the fortunes of the financial industry).

Posted on May 4, 2011 at 5:44 am by alexmanzara · Permalink
In: Eurodollar Options

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