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Enron Mail |
COMMENTS
PRICE ACTION THIS AM Despite markets trading lower out of the gates on rumors of Bin Laden's capture, customer flows we've seen have been skewed to the buyside. We've had buying of euribor, selling of puts on dec bund futures, and buying of bunds/bobls/schatz on an outright basis. This just feels like a case of the market getting way too bullish way too soon. As for flows, the vast majority of our accounts seem to have taken most of their chips off the table a few days ago though there's obviously some large positions still remaining. While we don't advocate going long just yet as we believe there's potentially another day or two of weakness here, we certainly think it's time to begin to cover shorts and at least contemplate going long again. We don't give much weight to the Bin Laden rumor, fyi. Additionally, I heard two interesting pieces of anecdotal evidence recently - two very prominent business schools (one in the US and one in Europe who usually place at least 95% of their graduates by this time of the year have placed just 50% and 5% respectively of their graduating classes. EUR SWAPS Yet another day of very solid receiving in 10yr swaps. As we mentioned previously, we thought the Tresor would re-enter the market if we weakened again. Well, we did and they did. We estimate roughly EUR2bln 10yrs traded as 10yr swap spreads closed another 1bp tighter on the day. Given where we've opened today, we expect to see more receiving pressure yet again. Additionally, 2/5/10 looks quite convex here at -11bps and we expect to see dealers taking this position off later today - we've already seen one prop account take some off today. On the new issuance front, while the EUR5bln 5y EIB deal will be priced today, it's already been swapped and our best guess is that the continental bank that took down the bobl 138 yday did so against the receiving they've done in the run up to this deal. So today, we expect them to pay in 5yrs vs bobls to get net flat the sector. We also get the EUR750mm deal for Deutsche Bahn later today and while it was supposed to be swapped yday, the rumor is that it was postponed and will likely be swapped in the next day and a half. EUR VOL Vol's been marked down pretty dramatically over the past two days as we closed virtually the entire surface 1 vol lower on the day & 1.5 vol lower on the week. While there was definitely some liquidation in the street, sizes were not that large and clips of 100-150mm were enough to move the market substantially. As liquidity was pretty lousy on the way up, it's no surprise that there's little liquidity on the way down. We've also had a few questions about the skew - ie, if it's being priced less aggressively can we expect to see the Danes come back - but the answer from our guys is that if it's illiquid in the ATM stuff, the OTM stuff is even worse. Having said that, the formula that dictates the rate used to discount Danish liabilities says they now need to use a lower rate (3.50%, down from 4% currently) and if this rate is marked down a further 50bps at the meeting in 2 weeks time, the long end bid to both cash and vol could return. Having said that, if equities continue to grind higher - and our sec lending guys tell us overall short interest is decreasing - the forced selling may not come to fruition. Nevertheless, something to watch..... LEVELS (close to close, ex basis) SWAP CURVE GBP/EUR(EUR convention) today t-1 5y5y -25 -27 15y15y -142 -140 10/30? -37.5 -34.0 10/30E +46.0 +47.1 EUR SWAP SPREADS 5y: Bobl 138 26.7 1.0 narrower 10y: Jan 11 bund 33.8 1.0 narrower 30y: Jan 31 bund 21.6 0.7 narrower GBP SWAP SPREADS 5y: 8h Dec 05 54.0 3.0 narrower 10y: 9 Sep 11 50.0 unch 30y: 6 Dec 28 35.0 2.0 narrower EUR SWAP VOLATILITY 3m into 10yr 13.9 0.7 lower 1y into 10yr 12.9 0.7 lower 2y into 10y 12.5 0.7 lower 5y into 5y 12.1 1.0 lower 5y into 25y 10.3 0.7 lower 10y into 20y 9.6 0.8 lower 5y5y swaption/5x10 cap spread 2.5 This material is for your private information, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Certain transactions, including those involving futures, options, and high yield securities, give rise to substantial risk and are not suitable for all investors. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material may, from time to time, have long or short positions in, and buy or sell, the securities, or derivatives (including options) thereof, of companies mentioned herein. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without Goldman, Sachs & Co.'s prior written consent.
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