May 8. Yellen to continue accommodative policy
–Once again yields fell yesterday, as Yellen signaled a continuation of highly accommodative policy. She noted…” the recent flattening out in housing activity” as a possible concern. At the end of her speech she cited a goal of financial stability, and concluded that risks are minimal, shrugging off “reach for yield” behavior seen, for example, in tightened credit spreads. Eurodollar options traded accordingly, with wholesale exits of puts (even before the speech was officially released). Green July 9800, 9787 and Green Sept 9775 puts were sold in size of 10k, 20k and 20k. Late selling of Green June 9862/9837 p spreads at 16. Consistent selling of red midcurve Dec premium, with 9900 straddle sold at 42 (settled there). Most eurodollar sraddles fell 1-2 bps. Late new buyer of 10k TYU 124c for 51.
–ECB meets today. In the US news includes Job Claims expected 330k, and the 30 year auction. (Bonds were an underperformer yesterday). Also several Fed speakers on tap.
–Consumer credit released yesterday afternoon was a huge $17.5b, though once again student loans (non-revolving) are the primary category of increase. Non-revolving was up a bit over $16b while credit card debt rose only 1.1b. (MarketWatch) — Interest rates on federal Stafford student loans will rise to 4.66% for undergraduate students next year from 3.86% in the prior year. The interest rate is pegged annually to an auction of 10-year Treasury note which sold at 2.61 yesterday. Spending from student loans and 401k’s are underpinning US economic “strength”.
