Nov 29. Irish bailout…markets skeptical

Irish aid package of 85 bln.  As part of the agreement, bondholders aren’t at risk, but will be on bonds issued after 2013.  I read in a (Goldman?) note that this validates the idea of a steeper curve.  I would suspect that the dollar curve might also be impacted, specifically in calendar spreads from 2012 to 2013 (roughly reds/greens).  Currently these spreads are cheaper than greens/blues.  For example, EDU12/EDU13 spread settled 73.5 bps Friday.  However, U13/14 settled 94.5 for a butterfly level of -21.0.  I would expect this butterfly to tend more towards positive after this announcement, or would look for ways to play for relative underperformance of contracts from 2013 forward.   Maybe EDU12/EDH13/EDU13 fly? Perhaps now we know exactly how far the can has been kicked.  (Although I am guessing the market won’t let this situation fade away so easily). 
–Near eurodollar contracts have had a modest rally in the wake of the EU bailout, but EDZ is still about 7 bps below libor setting (around 29 bps) with only two weeks to go.
–I read somewhere that every safe deposit box in Germany is stuffed with gold or other valuables as a store of value against currency devaluation.  Also saw a rumor that a large long in GCZ is intending to take physical delivery.  Not sure when one has to notify the exchange of such intent, but physical delivery is allowed throughout the contract month.

Posted on November 30, 2010 at 9:50 am by alexmanzara · Permalink
In: Eurodollar Options

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