Thankfully the hurricane assumptions were off and they did a bit less damage than what was anticipated. Although let's not make light of the recent weather events, for mother nature always proves her strength. The financial markets were anticipating a bit more in damage and thus bonds were bid late into the week and pushed toward new highs in early am trading Friday. Yields hit year lows as the 10yr settled at 2.06%! However, sellers rejected those high prices and the bonds ended down slightly for the day on Friday. The equity markets were mainly sideways all week and ended down marginally, but still well within reach or all-time highs! The dollar index sunk to new year lows at 91.33 as the Euro and Yen put in fresh year highs at 120.33 and 92.79 in the futures respectfully.
So, another week passes and another ECB meeting moves to the weigh side. Not much to report out of ECB land, other than Draghi and his cohorts are hell bent on generating some inflation. Which is really strange considering they are buying $72Bln worth of assets a month and yet inflation is nowhere to be seen, what do they have in mind? Of course, the strong Euro is at the forefront even if they don't want it to be as is the fact that they are running out of available bonds to buy. So, what does this all mean? Well we wait till the October meeting of course!
As privy bond market players, we should have seen the writing on the wall when the 10yr Repo market traded thru the fail rate this week. Basically, what fail to deliver and paying the penalty means, is that an entity would rather pay the highest charge to short the 10yr than try to find the security to deliver it. We could be wrong but from our lens, this meant someone was desperately accumulating a short position, i.e. looking for interest rates to rise and the fee to short them was inconsequential...considering what has happened so far this week well someone was very happy! We will show you the charts later on.
Also, out this week was the quiet passing of a bill to temporarily suspending the debt limit and fund the government through Dec. 8th. (which promptly led to the debt exploding to $20.3Trn) It also provided a little over $15Bln in disaster funding for the recent hurricane victims. Buying time that's all, but we read an interesting post this week where some were suggesting we just eliminate the debt ceiling all together and rather, just call it a "debt target." It has become a rather sad joke and thus targeting may be a bit more accurate.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. TRADING FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS. THERE ARE NO GUARANTEES OF PROFIT NO MATTER WHO IS MANAGING YOUR MONEY. THERE IS AN UNLIMITED RISK OF LOSS IN SELLING OPTIONS. YOU SHOULD CAREFULLY CONSIDER WHETHER COMMODITY FUTURES AND OPTIONS IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION.