Nov 24. Happy thanksgiving

–Bad German bund auction Wednesday sent 10 yr German yield well above US in a sign that faith is being lost throughout europe as a whole.
–Portugal was cut to junk, while interestingly S&P raised Iceland’s rating and outlook.  There are still capital controls, but improvement seen 3-4 years after the crisis and the economy in Iceland is growing.  There was also a warning that Japan may be downgraded, and of course with govt debt over 2x GDP there is massive vulnerability to any rise in rates.
–In eurodollars the curve again flattened as stocks sank.  Red/gold pack spread only at 150 bps, a low for the year, and only half as much as the high for the year.  In August as stocks swooned the spread was around 200 bps.  After the Sept 22 FOMC twist announcement it briefly settled 164.5.  New lows in this spread is in no way indicative of success by the Fed, it is more likely signaling extreme economic malaise going forward.  Gold eurodollar pack represents the year 2016, and that forward one year rate ignoring compounding is only 2.35%.  Same thing is apparent in the 10 year note which fell another 6 bps to 188.

Posted on November 24, 2011 at 12:04 pm by alexmanzara · Permalink
In: Eurodollar Options

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