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Everyone is talking about worries over inflation, but it seems that the worries are over liquidity problems. The very strong short covering in the dollar shows that leveraged accounts are hurting (I think the US is the last place they really want to be invested). In a de-leveraging environment...

So this is what PIMCO is doing. What do they say? Q: How are these primary conclusions from the Secular Forum influencing PIMCO's overall investment strategy? McCulley: The overriding theme of our secular investment strategy is that we are anticipating an increase in risk premiums across a...

If you want to play a "flight to quality" spread bet on the side you could go long ZT and short EDU7. I think that would be a proxy for 2yr swap rates. By the way, the one-year mid-curve put options are another way to short EDU7. See...

The credit-derivatives market now is considerably larger than the market for cash bonds, and that makes it much easier to alter positions or transfer risk in such issues. "That's one of the reasons we have seen such [market] stability," Mr. Kauffmann says. "And it's one of the reasons we might...

It seems like forever since flight to quality actually mattered, but bonds appear to be picking up a bid from stock market weakness. Maybe this bid has a flattening bias given inflation uncertainty, but I doubt that inversion will occur. Also, interesting article in the FT that British...

Actually the company was Delphi, not GM - sorry:). But they say if GM did declare bankruptcy there could be a similar situation with not enough actual paper to cover the notional amount of swaps outstanding. Initially Delphi bonds rose in value after the bankruptcy due to the threat of a...

One rather eerie parallel is popularity of derivatives. Remember, in a vastly smaller cash market than today, there was SPX futures and OEX options that contributed to the cascading sell-off. Several brokerage firms had to eat the losses from customer short option positions. Today, in a larger...

I tend to think that the lack of vol and stable swap spreads is due to the fall-off in ABS issuance. The issuers are the primary players in hedging and if their books are smaller then you see less pressure on swaps/vol. I guess I would argue that at the “margin” it is a mitigating factor...

hey mcurto: Looks like the bonds are picking up a bid on fears about emerging market contagion. Are you seeing this?

Tony Notice that the Bund is holding a little better today. One advantage of the bund is the implicit short dollar position (assuming you keep score in dollars). It might be a way to play a possible rally in ZN with less risk.

My bet is that the buying in the short-end is reflective of steepeners being put on. Found it very interesting that 10yr JGB have approached 2% - which might be a significant psychological level for banks/insurers to shift into yen denominated assets. Also, look at bunds selling off to new lows...

The payrolls number will probably get revised over the next few months, so it may or may not be the start of a trend. What this number does do is allow the Fed to spin the statement next week to a future pause. After the statement and auctions, the market will have the greenlight to put on...

It would appear that the lack of a strong vol bid/continued tight swap spreads during this sell-off, reflects the sharp contraction in mortgage originations. I am thinking that we may not see as much convexity selling this time as earlier sell-offs. I am still intrigued by the 10/30 put...

Today’s auction of 5s was just as dismal as the previous auctions this week. It really looks like the Foreign banks are on a buyers strike. If this is the case (and I think it is highly likely) then the curve is really going to steepen. I remember reading where it was estimated that foreign...

Interesting TIP auction: Dealers took down a whopping 64% of the 5yr issue, last year they only took down 36% of the same issue. It would appear that mcurto’s report yesterday of JP Morgan’s 5yr note/3yr bundle sales was prop traders seeing weak demand for the auction(s)? I’ll bet that the...

hey mcurto- Curious to know if the dealers are hedged well for the $47B in supply over next 3 days. Are they prepared to eat a good chunk of the issue if the Asians don't show up, or do they expect the London/Caribbean funds to keep taking up the slack? Also, is the MOVE index still...

The problem with attempting to slow down the economy is that monetary policy is a blunt instrument (more like a butter knife than a scalpel). Unless you move rates sharply in a short period of time, it is difficult to change market behavior. The Greenspan Fed got away with its fine-tuning of...

I think we may have the most dovish FOMC ever! Greenspan had some 50bp cuts in rates during the move to 1%. Yet the increase to 5% has been in steady 25bp increments, and well advertised to the markets. I don't think that this FOMC can turn into hawks - they will always spin the economic...

It is interesting that there is lots of chatter from Wall Street about the Fed stopping rate hikes later this year, but no discussion of whether the rate hikes have really been effective. Face it, after +375bp of Fed tightening, credit spreads (ranging from investment grade to emerging debt)...

It does look like treasuries could be in a downside break-out. When SPX is down a percent (while not a 3 sigma move, it does seem strong by recent standards), I find it unusual that VIX barely budges, Red_1 ED breaks to new low, and the bond is down a point. Maybe a collapse in commodities...