Oct 12. Bond yields surge

Oct 12.  Interest rates rose substantially Friday with ten year yield up nearly 13 bps to 3.38%.  The primary bearish factor was Bernanke’s speech Thursday evening where he reminded the market that the central bank will withdraw liquidity at the appropriate time, but stronger than expected Canadian employment data also contributed as did the bond reversal associated with the auction on Thursday.  The long bond yield, which had gotten as low as 4% last week, ended at 4.23%. 

–Implied vol jumped (in treasuries) from what were around the lowest levels of this calendar year; around 6.8 in tens up to 7.4. 

–The battle over treasury yields has, until the end of last week, been won by deflationists, those who see a grinding recovery (at best) with plenty of slack in the economy.  On the other side are players who feel that US budget problems reflected in huge debt issuance and a falling dollar will make foreign creditors think twice about lending money to the US at these low rates.  This latter camp gained the upper hand Friday.  In terms of budget issues, it’s interesting to look at both coasts.  In NY Gov Paterson ordered spending cuts as income tax revenue has declined by 36%.  In CA, the new budget has already been busted.  (BBG) “Revenue in the three months ended Sept. 30 was 5.3 percent less than assumed in the $85 billion annual budget.”  There was a $1.1 billion drop in revenue. 


Henry Blodgett on Huffington Post

It’s now official: The country has lost more jobs as a percentage of peak employment than at any time since the Great Depression

Read more at: http://www.huffingtonpost.com/henry-blodget/the-scariest-jobs-chart-e_b_315910.html

Posted on October 11, 2009 at 6:46 pm by alexmanzara · Permalink
In: Eurodollar Options

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