June 5. Italy fades
–Stocks continue to climb and rates continue to unwind lower as the market discounts spillover from Italy’s problems. Red thru gold eurodollars closed down 5 to 5.5. Green June (EDM0) is down more than 30 bps from last week’s high. The ten year yield was up 4.2 to 293.3. However, given light news this week, implied vol declined, with ED straddles down 0.5 to 1.5 bps.
–Today’s news includes ISM Services expected 57.6 from 56.8. Nonfarm productivity expected +0.6% with unit labor costs +2.8%.
–EDZ8 to FFF9 edged out to its recetn high of 40.5, with EDZ8 -3.5 on the day and FFF9 -2.5. EDU8/EDZ8 closed 16.5, up 2 on the day as it’s now less than two weeks away from being the front spread. While pressure on December is understandable due to year end issues which were highlighted last year, the odds of a Fed hike at the Dec meeting are around 50/50 (with FFX/FFF trading 12). EDU8/Z8/H9 fly closed 5.5.
–Interesting note by the head of the Reserve bank of India, Urjit Patel, who says that the combination of increased treasury issuance and the Fed’s QT is soaking up all USD liquidity, a problem for emerging markets. US crowding out other borrowers… article in FT
