SWAP Updates

Interest rates are in consolidation mode leaving the 10yr treasury stuck in an ever-narrowing range.  With the Fed done and on hold until the next FOMC meeting on Aug. 1and with the Moody’s bank downgrades proving to be a non-event, the market is once again at the mercy of Europe and the 2-day EU Summit that begins tomorrow.  Investors are cautiously optimistic, but given recent pre-summit statements, even mild optimism seems generous.  German Chancellor Merkel reiterated that Germany cannot be overburdened and said "I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures."  On the agenda, Spain is expected to formally request aid to recapitalize their ailing banking sector and also ask the EU leaders to allow bailout funds or the ECB to stabilize financial markets through bond purchases.  Spanish 10yr notes trade perilously close to 7% and Italian 10yr trades firmly above 6%.  Also not unexpected, but the country of Cyprus has become the fifth Eurozone country to seek a bailout due to their heavy exposure to Greece.