Oct 16. All about liquidity

–Ten year yield rose 4 bps to 202.  The market is comfortable around the 2% level, near the halfway mark of the year’s range.  There was a new buyer of 15k TYZ 128/130.5 combo yesterday, paying 1 to 3 for the put around 129-05, 06 (settled 4 vs 129-025).  However, downside appears limited and market makers continue to be weighed down by long call inventory.
–It’s pretty clear that the primary factor driving markets is perceived liquidity.  It’s not earnings or revenue growth; we’ve had some poor results so far this earnings season.  Many markets bottomed right at this month’s employment report, which substantially removed the odds of a hike this year.  Since then there has been a big bounce in energy stocks, high yield, EM fx.  For example, since Sept 29 the Korean Won has rallied 6%, though its export growth has remained negative (-8.3% yoy according to the last data).  Dudley yesterday repeated that a rate hike could be in the cards this year.  The market ignored him.
–US budget numbers were released yesterday, with the deficit at only $439b compared to $483b last year.  Tax revenues were up 7.6% from $3.02t to $3.25t.  Though there have been concerns about foreign central bank selling of treasuries, it would appear, from this data at least, that the improvement in the US budget lessens the need for treasury to issue as much debt, perhaps balancing out selling pressure from other countries.
–Today’s news includes Industrial Production, expected -0.3% and JOLTS.

Posted on October 16, 2015 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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