Oct 28. More uncertainty in long rates

Oct 28.  Longer maturities continue to lead the market lower.  Once again 2/10 and red/gold pack spreads made new highs with former at 230, up 6 bps.  Ten year yield rose 8 bps to 2.71%. It’s been a fairly dramatic move given views only a month or so ago that rates would just sit.  For example, the huge seller of TYZ 125/129 strangles is now underwater on all sales if he didn’t cover, as 125p settled 58 yesterday (strangle 63s).  However, it appears that downside adjustments were made, if only from open int which shows 144k open in 129c strike vs 96k in 125p.  
–Speaking of uncertainty, after all this time of letting the market speculate on QE2, (and letting the mkt come to a consensus of around $100B per month), BBG reports the Fed has sent a QUESTIONNAIRE to primary dealers asking about size, impact etc.  Perhaps there was a less obvious channel to make this inquiry? Does it show the Fed doesn’t have a grip?
–Green midcurve eurodollar calls had notable volume day…over 200k.  E2Z 99.25c traded 119k according to prelim open int sheets, and OI in that strike gained 54k, up to 201k for that strike alone.  There was also selling in E2Z 9887 straddle at 31.5 in size of at least 10k.
–Just a couple of precious metals notes from skimming ZH.  JPM and others being sued over silver mkt manipulation.  Also, a China Trade minister says China should add more gold to its reserves.

Posted on October 28, 2010 at 4:47 am by alexmanzara · Permalink
In: Eurodollar Options

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