Oct 13. US ten yr treasury yield up 1/2% since post FOMC low…time to buy.

Oct 13.  One year eurodollar calendar spreads made new recent highs yesterday.  EDM12/13 gained 1 bp to 20.5, with larger moves seen further out the curve. The day after the FOMC, on 22 Sept, this spread was only 1 bp.  In fact, most curve lows occurred right after Fed’s twist announcement, 2/10 was 152, made a new high yesterday of 194, just 14 trading days later. Red/gold was 164.5, yesterday +8.875 bp to 202.5.  I’m not sure whether to interpret the moves as disdain for the Fed, or that the US economy is in better shape than thought as some data suggests, or that europe is addressing banking problems.  Probably a combination of these factors, which have also contributed to a sparkling 13% gain in the SPX from Oct 4 low. In terms of the Fed, the goal of keeping long dated rates low doesn’t seem to be working as 10 yr yield hit 1.76 Oct 3, and has risen nearly 1/2% since then to 2.22.  Signs of the Fed’s impotence are not just reflected in the market, Philly’s Plosser was on CNBC saying the Fed has done a lot and further action isn’t likely to help the economy (though minutes yesterday revealed that QE3 should still be an open option).  One other rate that has been relentlessly rising bears mention: 3 mo LIBOR yesterday surpassed 40 bps, up from 25 in July.
–Yesterday’s trade indicated that some players were taking advantage of the rise in yields to enter long positions.  For example a seller of 25k TYX 127.5p was new.  Also a buyer of 25k FVX 122c covered 121-21.  And a seller of 20k EOH 9900/9925 put spreads at 6.5.  These trades happened before the sloppy 10 yr auction which triggered immediate sell orders, followed by a rebound.  30 yr bond auction today.
–Today’s news includes Job Claims, 405k and US Trade Balance, -46b estimate.  Regarding global trade, this was on BBG: “China’s exports rose the least in seven months and the customs bureau warned of “severe” challenges as the global economic outlook dims…” And from another Bloomberg article over the weekend: “Containers are stacked at the Yangshan Deep Water Port in Shanghai, China. Growth in shipments to Europe, China’s biggest export market, slumped to 9.8 percent, from 22 percent, amid the sovereign-debt crisis in euro-region nations.”

Posted on October 13, 2011 at 5:31 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply