Nov 5. Post FOMC/new yield curve high

Nov 5.  Another Fed meeting, another promise to keep rates at zero forever.  In response, the curve steepened to new high, with 2/10 out to 263, up around 8 bps.  Red/gold pack spread gained an equal amount, now over 244. Absent (of course) in the FOMC statement was any mention of inflationary impulses, for example, the new highs made in gold.  And, though I have kind of given up on using this spread in any meaningful way, the ten year treasury/tip spread made a new high for the year of 213 bps.   In the beginning of 2009 this spread was more like 50 bps. 
–I feel pretty strongly that red/gold spread will see 300 bps again.  This year, when ten yr/tip sprd was 50, red/gold was around 110-115.  When the former spread got to around 200, red/gold was more like 270.  Red/gold did get up to around 295-300 in early June (just before June contracts rolled forward).  At that time 2/10 was around 268-273.  The tapering off of Fed MBS purchases will also likely diminish some support at the longer end of the curve.
–Stocks reacted poorly after the Fed, giving away all the early gains to close near unchanged, in spite of a fall in the dollar.  Nasdaq posted a modest loss on the day.  
–Implied vol in interest rates fell as insurance trades were unwound. 
–Focus now is on job picture.  ADP yest was -203.  Job Claims expected 525k and NFP tomorrow expected -175k.

Posted on November 5, 2009 at 5:53 am by alexmanzara · Permalink
In: Eurodollar Options

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