Oct 8. I don’t want the cheese anymore, just help me get my head out of this trap

–Stocks tried to hold up but then broke down into the end of the day with major indices -1.5 to 1.7%. New low for the year in Russell 2000.  Nov Crude fell 1.75 to 88.58, the lowest settle for the first position contract on the year (and it’s now down another $1, below 88).  There was a tremendous amount of eurodollar option liquidation…  turning the ship around in terms of Fed tightening expectations and in terms of near term growth prospects.  Even with ten year auction today and 30 yr bonds tomorrow, yields broke to new lows.  Tens were down  to 234 by the end of the day, a plunge of 8 bps.  Five yr yield fell to near 162, down 6 bps on the day.  There is probably substantial support at these yield levels, but a blow-up in the equity market means all bets are off.  New high 5 yr swap spread to 19.25 bps…highest since August of 2013 and up from 12.5 in mid-Sept.  Spot vix jumped 1.7 to 17.2.

–Spreads: 2/10 treasury, 184.  New low (since Aug).  Red/green pack spread 92.5. New low.  EDZ5/EDZ6 104.5.  New low.  The peak one year eurodollar spread is now EDU15/EDU16, which is currently 106, down 5 bps on the day.

–Bid for the upside in treasury options.  On Tuesday, TYZ 125.5^ settled 1’40.  Yesterday, the new atm straddle, 126 line, settled 144.  Call open interest is rising on the move to lower yields.  The market is demonstrating a strong concern about a further drop in yields, and it could easily turn ugly.  “They panickin’.  I can feel it.”  http://www.youtube.com/watch?v=uI4fVgVVpiw

–FOMC minutes this afternoon, might have some bearish undertones.  But even though the meeting was only three weeks ago, the prospective road map forward has changed.  Want to see a parabolic chart? (no, not $/yen).  Take a look at Google trends for ebola.  It’s been a fairly short time frame, but is already beginning to change behavior.  https://www.google.com/trends/explore#q=ebola%20virus

Posted on October 8, 2014 at 5:26 am by alexmanzara · Permalink
In: Eurodollar Options

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