Short term interest rate products continue to edge higher for the start of the year as rate hike expectations for the first half of the year are diminishing. Dec10 Euribor has risen 37 Basis points as a weak job market and on going concerns in debt levels in Greece and Portugal reminds us that we are not quite out of this mess yet.
Fron end spreads continue to decline as it is expected that Mar10-Jun10 Euribor, Eurodollar and Short Sterling spreads will go to zero.
Last weeks fed statement maintained its stance on exceptionally low rates for an extended period of time, but there was opposition to this from one member who believed that the "extended" should be removed from the statement, which shows that opinions are changing regarding the necessity to keep rates this low.
Looking at the long end, bunds have been range bound over the past couple of weeks, between 122.75 and 123.60. With the ECB and Bank of England set to announce rates this week we will be looking for clues on when policy makers will start the rate hiking cycle.
We also have US Non farm pay rolls on Friday, which is expected to show some job creation. A good number would put some pressure on bonds as we are at very elevated levels at the moment.
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What do you think of a erm0erm1 steepener trade?
ReplyDeleteThink that is a buy, but largely depends on the sitaution in Greece and Portugal.
ReplyDeleteThe last two times it was trading at 1.00s it bounced sharply, so think risk to reward is there for sure.