Nov 14. Strange Correlations

–Yields pushed slightly higher yesterday led by the short end, with the 2-yr up nearly 3 bps to a new high of 1.683%. EDZ7/EDZ8 spread made a new high of 45.75, and EDZ7/EDH8 also posted a new high of 16.75.  There was quite a bit of put buying on the short end yesterday; EDZ8 settled 9801, on top of the 9800 strike where the Dec midcurve has 620k open on the put side (0EZ 9800p).  I didn’t think it was likely that EDZ8 could break the 9800 level, but I also didn’t think GE could trade below 20…

–Several interesting blurbs yesterday that I would have thought were major headlines in days of old, but are now relegated to mere ‘blurbs’.  BoJ’s Kuroda said Japan’s high debt to GDP ratio is not sustainable.  Yen barely moved.  Calpers is shifting its allocation more into bonds from stocks.  Little reaction.  Dalio is buying GLD and is now the 8th largest holder.

–A client mentioned yesterday that the Central banks have ruined the markets.  This morning as I write, the major central bankers are on a discussion panel, probably scheming how they can provide more “help” to the developed economies.  So I will just leave you with a couple of charts:  First, I looked at the US 2yr yield, and thought the rise since September looked familiar.  Oh, yeah, looks like the Nikkei… does that make sense?  I suppose one could weave a story that the dollar strengthens as US short rates increase, and Japan is dependent on exports, therefore NKY rises…  but I am much more tempted to put it into the ‘broken markets’ category.  Another chart is TSLA vs HYG (the hi-yld etf).  One is a high tech, cutting edge disruption catalyst, led by a genius.  Want the same relative performance?  Buy some junk bonds.  It’s all starting to make sense now, right?


Posted on November 14, 2017 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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