after repricing late yesterday, marking time waiting on Draghi…. (Thursday)

Global markets are mainly trading sideways and quietly since the US close on Wednesday, after repricing late in the US day on the US/EU tariff agreement and the 24% drop in Facebook shares, now waiting on Draghi’s press conference at 8:30 AM ET, after the ECB statement was in line with expectations. As of 8:15 AM ET, Treasuries are flat to their 5 PM marks but 2-3 bps worse in a bear steepener from the 3 PM marks. US equity index futures point to slightly lower opening under the pressure of the Facebook debacle.

After Treasuries broke lower on the US/EU agreement late Wednesday, the Asian session opened to some small Japanese real money bottom-fishing in US 10s; however, that buying was more than offset by CTA selling in TYU and USU contracts. Central bank buying of 5s was joined after the Tokyo lunch by both Japanese and Asian real money buying in 10s and 30s that helped retrace some of Wednesday’s late steepening. Japanese banks sold 10s and paid in USD 10y swaps, while Asian real money received in USD 30y swaps on the hand off to London. Locally, JGBs repriced and then added small losses when the BoJ remained absent; a sloppy JGB 2y auction (weak bid/cover, largest tail in 15 months) only added to the pressure on JGBs as 10y yields backed up almost 3 bps. In stark contrast, a KIWI 7y auction saw best demand for an issue down under in over 18 months, as New Zealand rate markets rallied and dragged Aussie along for the ride. Japanese and Chinese equities closed small lower on the session, while rest of Asia posted very mild gains on the risk rally for EM.

Europe opened as expected in line to Treasuries, repricing risk after the US/EU agreement when it resumed trading in the morning. That early open lower was met by decent real money buying in buxl and ultra gilts that pulled both back toward unchanged, at which point better deal-related selling emerged in EUR 10y sector; macro account used the bid in ultra gilts to add 2/10s steepeners in GBP swap space and sold US 10s outright. RV accounts stepped in to sell some 7s ahead of today’s supply on the early bounce in Europe, while peripherals outperformed slightly ahead of the ECB announcement, until Italian 10y linker found decent pricing but sloppy demand on a weak bid to cover that widened out Italy and weighed on peripherals. There was a macro buyer of bunds to sell OATs as well. On the step down selling leading up the ECB announcement, heard better hedge fund paying in EUR 10y and 5y swaps before things got really quiet ahead of the ECB announcement. The NY open was a quiet, sideways affair ahead of the ECB.

Today’s calendar in the US brings us trade balance data, durables, and weekly jobless claims all at 8:30 AM ET, followed by KC Fed at 11 AM. Of course, today’s most important event after Draghi press conference (8:30 AM) will be Treasury’s final issuance of the week at 1 PM ET, with $30BN in new 7y paper to be auctioned.

It was a very interesting day yesterday, with the EU/US agreement fueling a risk on repricing late in the US day. Even bad earnings and a dour outlook for Facebook that took shares down 24% after the close have done little if anything to stem the risk mentality. For choice today in TYU, call the range 119-19 to 119-06, the latter being the level that should get a 3% print for cash 10s. Resistance above comes in at 119-21, 119-24, 119-29/30, 120-02, 120-10+. Support comes in at 119-13+, the aforementioned target at 119-06, 119-01, 118-28, 118-18+. Plan should remain the same in the backup here: quietly adding some vol, with an eye to adding 30y tails (synthetic call structures) and 5y tails (straddles for pure vol) over the next week or so.

Have a great day….