T-Bond trading comment (August 30, 2007)

Well the bad news just keep coming our way.... Where do we start ? West LB lost 604 mln on bad trades, Lehman is rumoured to have big problems, a bank has borrowed 1.6 bln pound at 6.75%, the president of S&P has given his resignation, credit indexes are getting wider and Deutsche Bank is firing everybody from its credit trading London team amid rumours of 100+ mln euro loss... In addition to all this, the rumour mill is churning like crazy.

The two biggest rumours of the day were: the big five US investment banks firing credit trading teams after the long week-end and some crazy trading in deep in the money calls striked at 700 and expiring on september 21. The rumour wants it that it is a terrorist group playing there while preparing a massive attack on the United States... I must admit this is not the easiest way to do that but who knows... When we look at the open interest on SPX options the 700 strike open interest is huge.... But again I am not an expert on stocks.

On the liquidity front, the days pass by and look alike... Libor still ticking up (not good, really not. This could shed a lot of blood on the street), swap spread curve still inverting (again, this is also a sign that something smells foul) and hearing more and more people just throwing the towel in submission....

Today we had a pretty uneventful day on the T-bond as the market ticked up on increasing fear of a more serious problem in the market. Tomorrow we have PCE data, Chicago Purchasing Manager and University of Michigan. Also even if there is no Q&A session tomorrow, Bernanke is going to talk at 10h00 AM and he will maybe shed a bit of light on how he sees the situation in the market... So stay tuned...

Half day tomorrow !!!