OK, so yesterday started a “new commentary” twice before giving up. Too many tape bombs. Let’s try to avoid some tape bombs and get this out on “Balloon Tuesday” as we trade better to risk on the second day of the week. Theme is talk of “restarting the economy” and (HOPEFULLY!) putting politics aside long enough to get a US stimulus package passed by Congress. Volumes remain anemic, in a much smaller trading range than the last three weeks. As of 8:15 AM ET, Treasuries are 1-5 bps higher on the curve in a bear steepening move while US equity index futures have moved off limit up, but are still 3-4% higher than yesterday’s close ahead of the cash open.

Asian session saw early Japanese real money buying of US 10s, but the Trump press conference on the virus helped underpin risk as the market heard talk of restarting US business and production in shorter order than most have envisaged. Here’s hoping wisdom helps us navigate a safe time to get it done at the earliest we can do without exposing people needlessly. As US equity futures ticked higher, Treasuries came under pressure, albeit on anemic volume with Asian bank a better seller of 5s. There had been some early Japanese bank receiving in USD 5y swaps, along with deal related paying in USD 30y swaps, but by the end of the Asian session flows were to better bank and deal related paying in USD 5s, 10s and 30s. There was some small central bank buying of 5s and a buyer of MBS, but nothing to write home about. Not that swaps volume was huge, but it was better than anything in Ts or futures.

Locally, JGBs rallied 4.5 bps, Aussie rates were 1.9 bps lower in yield while Kiwi rates went the opposite direction at 5 higher in yield. The rationale was simple: Japan did a liquidity enhancement in 1-5y that went well, Australia did purchases in 5-10y sector that went well (although long end swooned after), while New Zealand took a pass today. Soft Service PMI in Japan and Australia were largely ignored as no surprise. There was some buying of JGB 20y ahead of fiscal year end next week, some of which was thought to be placeholder as accounts are monetizing gains in USTs on the balance sheet, looking to flip back after April 1. Asian equities traded up as much as 7% in Japan last night, while rest of Asia was up between 3-5%, although KOSPI jumped a nice 8.6%.

The European session has been even duller than normal, which maybe that’s a good thing. Softer than expected Eurozone PMI (28.4 vs expected 39.5 and last of 52.6, whatever) and UK PMI (manufacturing was not as bad as expected but service PMI fell off a cliff) gave European and US fixed income a small and temporary bid. A schatz (German 2y) auction was the worst on record, tailing massively and technically uncovered, not that either of those should be a surprise. A large and growing issuance slate for EUR and USD deals today pressured long end of Ts and Bund curves, as better paying continued throughout the European session, helping to further steeepen the US curve. Bund curve has steepened from belly out to 30s, but flattener pretty aggressively on the awful schatz auction. Other than the swap flows, it’s hard to talk about USD flows. Anecdotally, there have been only two block trades in futures, the only real one taking place just before NY arrived (5:32 AM ET), as client bought 13,600 TUM0 for 110-07+ and sold 10,000 FVM0 at 125-05, plying $550K of DV01 in the 2s5s steepener while bullishly adding about 20K of additional DV01 in the TUM.

Wells Fargo strategy was out with their monthly rebalancing analysis yesterday, and it has captured much of the conversation overnight. As you could imagine, it is a massive sell FI to buy equities. I don’t think this is shocking but with the Fed as a backstop, not sure it is as large a FI negative as it normally might be. Early month end extension numbers are also out, looking for USTs to extend .07 years, MBS to extend a healthy .06 years, EGBs to extend .04 years, Japan to extend .21 years, while gilts are called to contract .02 years. Today’s data includes US Markit PMI, new home sales and Richmond Fed, none of which actually mean anything right now. Treasury will auction a new $40BN 2y note at 1 PM ET, it should not go well but that’s okay. More importantly, we will get the Fed doing 13-day repos (8:15 ET), O/N repos (8;45), and then the POMO starting at 9:30 for another $75BN today.

So let’s see what works here today. If you didn’t get some gamma on last week or even better the week before, then sell some USM calls covered; yes, it’s that time for the rest of this week. Look at selling a USM (59 days to expiry, so 2m into 30y) 190 call at 2-10/64s, exchanging 22% delta at 178-02 would allow you to sell a frothy 22% price vol, 11.2 in BPV which works. Okay, for choice today in TYM, let’s call the range at 138-02 to 137-00, with risk of trade down to 136-20 if we can break after the POMO gets moving; range thus far overnight has been 138-10 to 137-19. Support below comes in at 137-13+, then the aforementioned 137-00, 136-20/20+, 136-08+, 135-18, 135-11+, 135-08+, 135-00. Resistance comes in at 137-28+, the aforementioned 138-02, 138-07, 138-18+, 138-25, 139-03+, 139-11.

All right, good luck out there today and please stay well,
mjc