Oct 7. Long liquidation in red eurodollars over?

–Yields eased yesterday with US tens down 2 bps to 242.  Red/green eurodollar pack spread made a new low of 93.25, also down 2 bps on the day.  While some commentators continue to look for aggressive tightening, one-yr calendar spreads below 100 bps suggest differently.  Interesting piece from JPM on ZH saying QE has made “made private non-bank investors very overweight credit.”  The implication is that the forced move into higher yields could result in a nasty unwind.  We’ve just seen a small example of potential carnage in HYG and JNK.  Sell to who?
–Not much change in open interest in red euro$’s yesterday, indicating that relentless long liquidation has abated.  There was a large short cover buyer of 50k EDH5 9975c for 1.75 and also a new early buyer of 40k Green Dec 9800/9825 call spreads for 6.0.
–Overnight weakness in equities as German data continues to disappoint.  Weak Factory orders Monday were followed by today’s release of the worst Industrial Production in 4 years, -4.0%.  Ebola fears are spreading.
–On a more anecdotal note, Samsung profits plunged due to weak smartphone sales (WSJ).  GT Tech fell 90% yesterday as AAPL didn’t use the company’s sapphire screen technology.  Has the smartphone business crested?  AAPL has, for the last month, stayed in a tight range completely within the high and low set on April 9 when the company rolled out the iPhone 6 and iWatch.  The low of that day is just above 96.  A break of that level could have broader equity market ramifications.

Posted on October 7, 2014 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

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