better to risk so far with zero conviction but that can’t be a surprise (Monday)

After the 5:04 PM headlines from Friday afternoon, fear and sentiment eased markedly by the time we reopened last night. Volume was good during the overnight session in a better to risk trade, with better foreign interest to sell Treasuries. As of 8:15 AM ET, Treasuries are .25 to 3 bps higher in a bear steepener while US equity index futures trade just under 1% better ahead of the cash open.

There was Asian real money selling of long end after Tokyo opened; cash 20s and 30s along with WN futures were the primary choices through the Tokyo lunch. There was a block buyer of 1875 TYZ 137 puts for 12/64 at 11:09 PM ET that kept the pressure on USD rates. RV account sold 10s outright and on curve against 2s later in the Asian session, but Treasuries steadied, actually trading through unchanged into the London open, with some Asian central bank buying of now cheaper WN and small amount of mortgages, while there was some small buying in the belly as gilts and bunds saw a flight bid on the weekend news of COVID spreading across the Continent.

That bid lasted until German and UK final PMI numbers were revised higher (German PMI +1.5 to 50.6 and UK PMI +1 to 56.1), at which point macro account sold 30s, RV sold 20s outright and against 5s, asset manager paid in USD 10y and 30y swaps, and hedge funds were better sellers of TY and FV contracts.

Swap flows perked up overnight, with better interest by real money types to pay in the long end. Aside from the above flows, there was normal Asian bank paying in USD 5y sector along with some deal-related paying during European session in USD 10y and 25y sectors. There was also a 20/25/30y butterfly that went through (paying in 25s) and has caught the markets attention in London.

Asian session saw better RV selling of JGB 30s ahead of supply there, with curve steepening on the setup, while Aussie and New Zealand traded lower in sympathy before better real domestic selling of Aussie 10s pressure rates. JGBs closed flat out to 10y but steepened 1.5 bps out to 30y, while Aussie 10s closed 3 bps higher in yield, setting up a challenge to support tomorrow morning; New Zealand 10s closed 1 bp higher in yield in a quiet session there. Bunds and gilts started bid on the COVID spread, but came under pressure from fast money selling after the PMI revisions and on some deal related selling in 10y gitls and buxl (UBZ0), but the dynamics of the COVID story have kept those fixed income markets closer to flat.

Global equities lead the risk rally this AM, with Asia seeing NIKKEI up 1.2%, Hang Seng up 1.3% as it returns from holiday, and rest of Asia up between .5% and 1.5%, although Chinese markets remained closed for the “Autumnal Festival.” European equities trade firmer, better by .75% to 1.2% across the continent, although peripherals are feeling some pressure as they buck the risk on trend and trade wider to core.

Today in the US, we will get final revision to Sept Markit PMI at 9:45 AM ET, followed by ISM Index at 10 AM. That’s about it for today. Tomorrow kicks off the October Treasury supply, with new 3s, followed by reopened 10s and then 30s on Thursday.

Okay, well we are running out of hope for a logical trading event again. There are too many crazy things going on in the world for the market to actually have a thematic trade. Just look at bunds and gilts overnight. But enough whining. For choice today in TYZ, call the range at 139-16+ to 139-08, after an overnight range of 139-14+ to 139-09. It stinks but it is what all the tools seem to indicate. Support in TYZ comes in at 139-08 objective, small at 139-06, 139-02, 138-28+; resistance comes in at 139-16+ objective, 139-21, 139-30, 140-00+, 140-10. Still not comfortable buying gamma here, even though it went pretty ballistic Friday when this guy covered; certainly can’t justify shorting any vol here given how fluid the situation is in Washington. Arggghhhh….

Have a good start to your week,