big rescue effort by Eurogroup getting dented by awful data…(Thursday)

Even softer than expect economic releases in Asia and Europe have kept a lid on risk, and largely offset the benefit risk markets had anticipated from the Eurogroup Council meeting yesterday. Markets are largely unchanged thus far today, with volume still on the meager side ahead of US data, US Treasury supply announcement and Eurogroup presser at the top of the hour. Treasuries are mixed in a flattener, while US equity index futures are basically unchanged ahead of the cash open.

The Asian session started quietly but after yesterday’s back up in the US long end, there was better Asian real money interest to bid and occasionally lift US 10s and 30s. Volume was better in the long end of the cash and Treasury futures curves than in the belly. After Tokyo lunch, Asian banks began paying in USD 10y and 30y swaps, taking advantage of the early outperformance and better liquidity than has been the case of late. There was levered selling in US 5s and 10s ahead of the European open, while RV selling of 5s and 7s against 10s was a common theme after Tokyo lunch.

Locally, Asian rates markets opened softer on the back of yesterday’s small sell-off in USD markets. This backup helped Japan issue new 2s to stellar demand, as on a currency-adjusted basis the 2y is very attractive to USD-denominated accounts. New Zealand also found good demand for their supply; both Japan and New Zealand rates were better to bid throughout the session. Very soft PMIs for Japan and Australia, both below consensus for whatever consensus is worth these days, also underpinned rates. By session’s end, JGBs were .4 bps lower in yield on the session, while Aussie 10s and Kiwi 10s both settled on the high end of the trading range, with yields only higher by 2 bps in both countries. Asian equities were mixed after yesterday’s US rally, with NIKKEI leading the way at +1.5% but China being the laggard at down .25%.

The early trade in Europe saw early risk on trade, with this being the first chance to trade the Eurogroup communique from yesterday. Peripherals were better to bid as the ECB will ease collateral rules to accept junk bonds (i.e., in case Italy suffers a double downgrade tomorrow!), and concession building ahead of supply also weighed on core markets. Treasuries followed bunds lower, while gilts had their own issue to deal with: DMO supply announcements of large increase in front-end issuance for the May-July period. Bunds saw good dealer selling from the outset, bobls were sold against French and Spanish 5y paper, schatz were sold by RV accounts, while macro account did large bund/buxl flattener. Very weak German GFK data was ignored, but soft PMI data was not, as France (10.4 vs expected 24.5 expected) and Germany (34.4 vs expected 39.0) both couldn’t come close to poor expectations. The belly of the curve benefited most in bunds, with aggressive buying of bobls by real money accounts, buying of bobl call structures by macro accounts, and buying of schatz by levered accounts. Gilts also benefited from soft PMI data, with long end leading the charge, ignoring the notice by the DMO of the larger supply. Talk in UK now is that another round of QE will be here shortly to absorb the larger supply. Peripherals opened tighter and have largely held to their repricings, with Greece in 18 bps to bunds (star!), rest of the peripherals in about 5-7 bps, but of course Italy lagging at about 2 bps better. European equities are mixed to very slightly better, but disappointing in the context of yesterday’s US rally and all that is being done to prop up the region.

Treasuries gave up all their flattening move from the Asian session by shortly after the open in Europe as long end came under pressure from the selling in bunds and gilts. There was hedge fund selling of US classic futures outright and against FV contracts, deal-related paying in USD 10y swaps, and selling of 2s by central bank. RV accounts began selling 5s and 7s, along with TY contracts as an early set up for next week’s supply as market expects a $2BN jump in each of the tenors (2s, 5s, 7s) for next week. The soft PMI data that turned Europe also helped bid the long end of the US curve, while more accounts took advantage of the bounce to add shorts in belly and against 30s, as curve flattened back out slightly. It has gotten horribly quiet since mid-morning in Europe, with little pickup since NY arrived, witness TY being in a 4/32s range since 6 AM ET!

The biggest events in today’s calendar will be Treasury’s announcement of next week’s supply calendar along with the Eurogroup Council press conference at 9 AM ET. We will also watch claims at 8:30 AM ET, along with PMI data at 9:45 and new home sales at 10 AM ET. Fed buyback will be at 10:30 ET ($5BN of 20-30y sector) and 11:20 ($16BN of 2.25 to 4.5y paper), while Treasury will hold its breathe and issue $17BN in 5y TIPs at 1 PM ET. Lot of tape watching today.

Okay and then the market…Got a nice backup yesterday, held pretty aggressive levels, maybe get a little more today and then buy something and hold on? Maybe. You also have expiration in May options on June Treasury futures tomorrow, which we’ll get into more tomorrow but for now will highlight 42K 138 puts, vs 46K 138 calls (interesting), making 138 the high open interest strike, while there are also 29K 140 calls vs only 2500 puts at the 140 strike to watch for the high disparity. There are not surprisingly 42K 139 calls as we trade the strike early today. Okay, for choice today in TYM, we are going to call the range at 139-11 to 138-22+ after a boring night trading 139-05+ to 138-27+. However, the numbers really argue for a 138-28 bottom, but going with an outlier that says we can make a move to 138-22+ and make things more interesting. If we trade there early, this 138-00 could get targeted for tomorrow, otherwise the risk switches back to the 140 strike, of course. Support today in TYM comes in at 138-28 level, 138-22+ objective, 138-15/15+, 138-11+/12+, 138-02, 137-28; resistance comes in 139-02+, 139-10+/11 objective, 139-16+, 139-19, 139-22, 139-27, 140-02.

Have a good and healthy Thursday,