Salubrious

–Once again yields fell and the curve flattened to new lows, in spite of slightly better than expected data.  Core CPI yoy 1.8%.  Headline Retail Sales +0.2 vs 0.0 expected…previous month revised slightly higher.  Decline in stocks seemed to give some support to fixed income.  Early weakness in Junk but etfs came back to close nearly unchanged.   New lows in 2/10 at 65 bps, and in 5/30 at 74.3 bps.  Tens fell 4.8 bps to 233.3.

–A BBG article notes that Fed insiders are pushing for a new possible framework as Powell takes the Chair.  “Alternative approaches could include allowing prices to overshoot for the same amount of time they undershot — commonly called price-level targeting — or even raising the desired inflation goal to 3 percent.”  Bond market calls bullsh-t with 30’s hovering at 2 3/4%.

https://www.bloomberg.com/news/articles/2017-11-16/fed-insiders-push-for-radical-policy-review-as-powell-era-dawns

–Ellington’s Vranos is concerned about a liquidity crisis (RTRS).  “Think of what salubrious environment corporate borrowers are in right now,” he said. “If they can’t roll (refinance) their debt, it’s going to cost them another 100 basis points, or worse than that, they just can’t lever as much. They put covenants in on that debt. That can crush corporations.” [Corp debt at nominal record high…almost all of which has gone to retire stock].  “Salubrious?”  What does that even mean?  I don’t know, but the last time I heard it tens were 6.5%. “You keep using that word.  I do not think it means what you think it means.

http://www.reuters.com/article/us-investment-summit-vranos/ellingtons-vranos-fears-corporate-liquidity-crisis-likes-fallen-angels-idUSKBN1DF33H

–Interesting late trade: +75k 0EM 9812c 8.5 vs -50k 2EM 9787.5c 13.0 (3×2) for 0.5 credit.  Ref 9794.5 in EDM9 and 9769.5 in EDM1.  So 25 bps between option strikes and futures spread as well.  Red/blue pack spread is on its low at 26.75 (as is nearly every other curve measure), so it’s a good fade of recent (relentless) flattening.  We’ve done similar trades: +3x 0EH 9837c vs -2x 2EH 9825c at flat (settled -0.5), and look at +0EH 9812/9825c strip (8.0s) vs -2x 2EH 9812c (4.25s), which could have been done flat.  A bit less risk with a one year spread…

Posted on November 16, 2017 at 5:18 am by alexmanzara · Permalink
In: Eurodollar Options

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