Post FOMC; Sept 24
Sept 24. The FOMC announcement overwhelmed mediocre 5-yr auction results as (once again) “…economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Those anticipating a more hawkish statement were forced to cover. Tens ended around 3.40%, down about 4.5 bps. In the previous statement the Fed noted that prices of energy and some commodities had moved higher; omitted from yesterday’s release.
–Stocks surged to new highs after the FOMC but then failed, leaving a key reversal; higher high, lower low, lower close.
–EDZ9 straddle was immediately crushed down to 14.0 as the contract moved toward the strike, up 4.5 bps to 99.61. EDZ 9950/9925 p 1×2 settled 0.25, worth buying as downside spec. Treasury vol also hit, leaving it at the bottom of the recent range.
–Eurodollar curve steepened with red/gold pack spread up nearly 6 bps. Fed’s tapering off of MBS purchases may erode some of the support for the back end of the curve.
–News today includes Jobless Claims expected 550k and Existing Home Sales expected 5.35M from 5.24M.
–CME Group announced a new bond contract starting next year, with bonds of not less than 25 years eligible to be delivered.
–Surprising quote from the Governor of NY: “You heard the mantra, ‘Tax the rich, tax the rich,”’ Paterson said Wednesday at a gathering of newspaper editors at an Associated Press event in Syracuse. “We’ve done that. We’ve probably lost jobs and driven people out of the state.”
