Nov 25. Yields surge

Wicked sell off in interest rate futures.  Ten year note rose 17 bps in yield, from 2.75% to 2.92%. Though yesterday’s 3 month libor setting for dollars was barely changed (near 29 bps), EDZ traded 99.60, or 40 bps.  Fairly large spread given only 2 and a half weeks until expiration.
–With ten year note down over a point yesterday, the atm straddle expiring tomorrow settled at only 34/64.   
–Europe continues to fray.  Central bankers everywhere appear to be overwhelmed by the situation.  Providing additional liquidity which sloshes around supporting various commodty and equity markets in volatile fashion doesn’t address the deterioration of the publics’ confidence in future earning power and in currency denominated “wealth”.  Future earnings are subject to uncertain tax rates, the possibility of declining purchasing power, and the vagaries of macroeconomic performance.  Pensions and retirement funds face declines, with Ireland announcing cutbacks and taxes, while Hungary is following in Argentina’s footsteps to force private retirement plans into the gov’t system. 
–Uncertainty would typically benefit US treasuries, but given yesterday’s sell off it seems like even that “safe haven” has become suspect.  Given China’s displeasure with the US policy of exporting inflation, perhaps the payback will be treasury sales right back into the open arms of the Fed, which will be forced into permanent QE mode.  Stocks rallied, perhaps as an alternative to both gold and treasuries at this point.

Posted on November 30, 2010 at 9:49 am by alexmanzara · Permalink
In: Eurodollar Options

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