May 6. Bonds reject the highs as improvement in employment tempers bond bulls

–Massive bond sell off Friday, on NFP of 165k.  Though somewhat stronger than expected, the details of the employment report were not particularly robust, for example there was a large gain in working “part time for economic reasons”.  According to Peter Schiff fast food restaurants have cut previously full time workers to below 30 hours to avoid Obamacare, and hired other part-timers to fill the slots.
–Tens rose 11 bps to 1.74%.  Curve steepened hard, with 2/10 up 9.5 to 152.4 and red/gold +14.25 to over 156.  Trade appeared to be primarily long liquidation as open interest in euro$’s, 2’s, 5’s, bonds and ultras all declined, though tens rose.  Equities surged to new highs.
–The bounce in the curve and reversal in rates suggests bond highs are in place for the time being.  2/10 had traded all the way from 180 in the early part of March to 143 on Thursday, nearly 40 bps.  Likely in a range from 145 to 165 going forward.
–From the Telegraph: “Oskar Lafontaine, the German finance minister who launched the euro, has called for a break-up of the single currency to let southern Europe recover, warning that the current course is “leading to disaster”.
–There appears to be more uncertainty in the market and much broader acceptance of the Fed’s role in pumping up asset prices, even on CNBC. From an El-Erian speech: “Ride the central bank wave. The more intervention done by one Central Bank forces other countries to do more. The Fed forced Japan into its policy shift. Japan has now forced the ECB to move further.” Further in the speech: “…do not give up liquidity cheaply. In the world today it is very binary.   It will either end well, or very badly, with no middle ground. Optionality and liquidity is the key to surviving and profiting from a binary world.”

Posted on May 6, 2013 at 5:36 am by alexmanzara · Permalink
In: Eurodollar Options

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