To wrap up our first “summer” week this year, we will wrap the week with Sleepy Friday, a day of two events: first look at Q2 GDP and serial Treasury options expiration. As one would expect, volumes have been anemic again as we await the GDP report. As of 8 AM ET,  Treasuries were flat to their 3 PM marks and equity futures were marginally higher ahead of the cash open.

Treasuries opened on their 5 PM marks, before finding what appeared to be a month end bid out of Asia. Asian real money accounts lifted 10s and a small amount of 30s, however hedge funds were better sellers of 30s that helped the belly outperform slightly early in the session. There was some Asian bank paying in USD 7y swaps, but generally the market flat-lined around the 3 PM settlement before going better bid after Tokyo lunch. Locally, Aussie rates repriced lower after yesterday’s Treasury sell-off, which in turn helped with issuance of Aussie 12y notes that were priced without incident. Aussie rates rallied throughout the session after repricing post the US sell off to close only 2 bps higher in yield by end of day, while JGBs were underpinned throughout the night on speculation that more JGBs would be held by domestic accounts and expectation for great BOJ dovishness at next week’s meeting. Equities in Asia saw China trade very marginally better, while Japan was marginally lower (NIKKEI down .4%).

After some hedge fund selling of US 30s into the European open, all the bank reports that highlighted the dovishness of the ECB statement over Draghi’s (misinterpreted?) comments on recession and viability of the normal stimuli resulted in better bid to European rates, dragging Treasuries to their highs of the night. Soft German import prices and a decline in French PPI also added to the bid for fixed income, as bunds dragged Treasuries higher. Peripherals remained under pressure after the disappointment over Draghi’s lack of love for them in his press conference as well. Italy and Greece as expected lead the widening, with Portugal not looking much better. There was better interest by RV accounts to add bunds against BTPs ahead of supply there, while domestic real money sold BTPs outright. The 4y and 13y BTP issues generated minor indigestion which helped Italy push slightly wider again. European real money bought

Today’s calendar is all about first look at 2Q and then we will spend a little time focusing on options expiration in Treasury futures for the August serial expiration. The below is open interest as of Thursday night:

US                                                            TY                                                             FV
CALLS         STRIKE         PUT                 CALLS          STRIKE          PUT              CALLS          STRIKE          PUTS
3000             153.50         6000                  9000             126.75       29,000             10,000             117.00         63,000
6000             154.00      10,000               42,000             127.00        71,000             11,000             117.25         65,000
4000             154.50         8000***           13,000             127.25        37,000***         14,000            117.50         56,000***
20,000          155.00        5000                58,000             127.50        31,000             82,000            117.75         52,000
8000             155.50        3000                33,000             127.75          9000              88,000            118.00         12,000                                                                                  71,000             128.00       21,000
***denotes at the money as of 8 AM ET.

So, looks like we should make a break for 127-00 in TYU and possibly try for 126-24. For choice call the range in TYU at 127-16 to 126-26. Enough for now, only event of the day about to print. Would be buying out of any dip later today and thinking about getting some gamma (bullish conditional variety) on late today or early on Monday.

Good luck this AM and have a good weekend,
mjc