Sept 28. Italy back on the front burner
–The curve pressed flatter as the last leg of the auctions wrapped up with the 7 year. Both 2/10 and 5/30 are just above 22 bps; the 2y rose almost 1 bp to 283.1 while tens fell 0.5 to 305.4. Option activity was dominated by premium sellers. Short (0EZ9) 9787 straddle settled 18.5 having been 21 a little over one week ago. 0EZ 9675 puts, which were sold in size of 200k pre-FOMC at 5.5, settled 4.5.
–Just after the close of the floor, Italy announced a budget with an expected deficit of 2.4%, higher than expected. EUR immediately dropped and is lower yet this morning as finance minister Tria, who targeted a deficit of 1.6%, was begged not to resign. EUR now below 1.16 having been 1.18 at the start of the week. Italy bank index is down nearly 6% this morning. The spike rally in fixed income in May was related to Italy turmoil, so this news most likely supports treasuries.
–Today’s news includes the Fed’s preferred measure of inflation, Core PCE prices yoy, expected exactly at the 2.0% target. Personal Income expected +0.4 with Spending +0.3. Chicago PMI 62.5. As an interesting aside, blackhawk helicopters are buzzing around the skies of Chicago, apparently related to a heightened security level concerning the outcome of the policeman on trial for shooting Laquan McDonald, expected next week. Police and fire departments on high alert. Northern Wisconsin is nice this time of year…
Italy bank index
