Oct 22. Earnings? Or the prospect of central bank support?

–There is a report this morning that 11 banks are about to fail ECB stress tests: http://www.businessinsider.com/report-11-banks-are-about-to-fail-europes-biggest-ever-stress-tests-2014-10#ixzz3GrdeGHhQ
Euro has weakened on this news, and stocks pulled back after yesterday’s scorching rally (Nasdaq gained 105.5, nearly 2.5% while SPX was up 2%).
–Ten year treasury yield rose 2.5 bps yesterday to 220.5.  Front end of the curve was pretty much unchanged.  Red/gold eurodollar pack spread rose 3 to just under 181.  5/30 treasury spread squeaked to a new recent high, +1.4 to 157.8.
–There was consistent premium buying yesterday, following the substantial retracement from last week’s explosion.   Treasury straddles across the curve were up 0.2 to 0.3, with TYZ 127.5^ settling 1’46.  Though not particularly large, one trade of interest appears to be an exit of long TYZ 127c, rolling into 131c.  Some time ago, there had been a large buyer of 127c for 10 to 15/64’s, yesterday they settled at 1’13.  Last week’s spike high in futures was around 130-16, with a yield of 185…so the 131 strike appears to be an aggressive target.  There was also new buying of TYX 128c with USX 144c as a strip, settled 13 and 11.  Official stress test results are to be released Sunday, November option expiration is Friday.  One of the drivers of yesterday’s trade was talk of potential corporate bond purchases by the ECB.  While TV pundits are self congratulatory for having seen through the correction that doesn’t really reflect the underlying dynamism of the US economy, the fact is that the only spark for stocks is the prospect of more central bank largesse.  Oh, I almost forgot, there have been a few earnings reports that handily beat estimates.
–CPI today expected 0.0 with Core +0.1.

Posted on October 22, 2014 at 5:07 am by alexmanzara · Permalink
In: Eurodollar Options

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