The other day I was looking for some info. that was (as I noted several weeks ago to my self) potentially bullish on fixed income. One thing that hit me this morning was reported in the FT this a.m. A synopsis of that article below:
The FDIC began on Friday 4/1 to levy a charge on funds borrowed by banks in the overnight lending market – aka the fed funds market. The net effect of this charge has eliminated the incentive for banks to arbitrage the current cheap level they could borrow fed funds for, (mostly from Fannie and Freddie) at say 10-15 basis boints and lend them to the Fed at the Federal reserve and receive 25 basis points. This arbitrage resulted in a profit for banks of about $200 million since late 2008 according to the article. The “taxing away” of the arbitrage has forced excess funds to flow into other short term instruments – the yield on 3 mo. treasury bill yields fell from 10 bp on Thursday to 4 bp on Monday. Furthermore dealers are concerned this new “tax” will cause a shortage of funds in the o/n repo market – in which treasury securities are loaned out in return for cash. One player in that market estimated that the drop in available funds as of 4/1 amounted to $40 bln.
This rings a bell – in terms of important legislation – impacting the markets instantly. However it seems perversely bullish for the bill market – but perhaps neutral to negative for the longer end – in that financing costs could rise in the repo market…On the other hand if banks refuse to lend out securities this could have the effect of squeezing the repo rate to flat to negative. – Now I’m getting beyond my pay grade and comfort zone – will come back later for more on repo implications for the longer end. This link to a story in the journal yesterday should help
http://www.djnewsplus.com/access/al?rnd=B2w%2Fo9fOz2FOGo0p6hTZRA%3D%3D
This one from zero hedge is very helpful on the subject as well:
The Article was by Mark Gongloff and Min Zeng "New fees Dries up a lending market. If you cant find it give me a call.
The above stuff is important to get out and digest – also we have a headline just out that “House republicans unveil sweeping budget plan to slash defecit.” This is just another item to keep aware of as the government is on the verge of having to shut down a number of services etc. as the debt limit is approaching. – Rode the train in with a lady who remarked that she might not be able to get a passport this Friday as they may be closing that soon. What a rush – eh as if we didn’t have enough to whatch.
Elsewhere trends remain down and will look for market to fail a test of yesterdays high on any rallies and continue to probe lower. If you would like a hand trading the long end feel free to give me a call. Keep in mind though feeling “free” will be the only free part. Ha – ha – I kill me….but this market is yielding a lot of money to disciplined trading – you don’t really believe that shit do ya – ya don’t ?? – well you should….. 01 312 432 5083.
More later.
Larger flows from a.m. listed below – note grab for 9887 calls in early going was a bit “too much” and the OTM calls have pulled back.
| 4/5/2011 | |||||
| Paper | B | 3,000 | EOH 9625/9700 p spread | 14 | 9776.5/77 |
| Paper | B | 3,000 | EDH 9900/9912 p spread | 4 | N/A |
| Paper | S | 1,500 | EDH 9875/9887 p spread | 3 | N/A |
| Paper | B | 500 | EDM12/EDU12 9837 strad strip | 178 | N/A |
| Fed fund opts | |||||
| Paper | B/S | 750 | FFK 9987 call | 2.5 | 9989/89.5 |
| Mann | B | 2,000 | FFU 9987 c | 0.75 | 9981.5/82 |
| Paper | S | 2,000 | FFK 9987 call | 2 | 9988.5/89 |
| Trade link | B | 1,000 | FFV 9925/9950 p spread | 1 | 9979/79.5 |
| 10yr. Opts | |||||
| Paper | B | 3,000 | TYK118.5/120.5 combo | 7 | ^11910 |
| Paper | S | 325 | TY Wk 2 119/119.5/120 c tree | 0.12 | 11910/11 |
| RJO | S | 500 | TYK119.5 strad | 1.16 | 11913 |
| RJO | B | 1,000 | TY Wk 2 118/120 combo | .05 call over | ^11911.5 |
| Paper | B | 10,000 | TYK 119.5/120.5 cspred vs. 118.5p | .02 cs over | ^11910 |
| CCM | B | 500 | TYK117.5/118.5 p 1X2 | 0.06 | N/A |
| Paper | S | 500 | TYK119 strad | 1.16 | ^11903 |
Comments