Sept 26. Credit conditions tightening

–Stocks continue to trade heavy, with SPX -1.6%, Nasdaq -1.9% and EEM, the emerging market ETF, down 2.2%.  Treasuries were bid, as auctions wrapped up with the 7yr; tens fell 6 bps to 251.  New low in the red/gold euro$ pack spread to 185, -3.5 on the day.  In the beginning of 2013, red/gold was hanging around 150.  Before the talk of taper.  When tens traded with a 1 handle.  Now down to 185.
–Credit spreads surged.  Hi yield ETFs JNK and HYG both made new low closes for the year.  I haven’t charted the spreads but HYG (iShares iBoxx $ High Yield Corporate Bond ETF) closed at 5.6% yield, so 3.1% over the ten year.  Companies had been using cheap funding to buy back their own shares. That window might be closing with the autumn chill.  As we close out September, it’s worth remembering that ECB stress results are supposed to be announced next month, and the Fed is expected to end this round of bond buying.  In a world dominated by the value, no, that’s the wrong word, by the PRICE of financial assets, liquidity is an absolute necessity.  Changes at the margin can have outsized effects.
–GDP revision today expected 4.6%.  Does a higher revision cheer the stock market, or serve as a reminder that Fed sentiment has shifted towards tighter credit?

Posted on September 26, 2014 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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