Midsession update.

Decent bounce of lows in ED contracts. One story made a lot of sense. Swap lines open from our Fed to the ECB provided funding @ 22 basis points. The ECB would then add 100 basis points to that rate and make funding available to EZ banks @ 122 basis points. This would equal a futures price of  9878 on ED contracts which should be a floor for the white months. Having noted that we do have a big seller 20K so far of the EDZ9925/9937.5 call spreads @ 5.5 ticks with futures around 9888.

In Fed fund options New Edge has been buying in short Oct. puts and issuing shorts vs. the Feb. futures.

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Another interesting story which should gain traction given what commodity prices are doing is a large deflation in the US and Europe. This according to the authors would take 10yr. notes in the US towards 2% and perhaps a bit lower.

Todays 2yr. note should go well but recent volatility could make the bidding sloppy. The size of the auction has been cut by $2 billion so analysts note the bid cover should  be decent.

Nothing to special in 10yr. options. Did see Smith B. buy 2K ot the Sep. 117.5 puts @ .44 with Sep. futures around 12105/05.5. On the bullish side with futures 12106/06.5 vs. Sep a dealer bought 2K of the july 122 calls @ .61. July straddle is currently trading 2.35 close to unchanged from the opening quote. Sep. straddle is currently 3.54/3.55 vs. 3.57/3.60 at the open.