Treasuries returned from a one-day holiday, playing catch up to the small global fixed income rally on Wednesday largely fueled by Lagarde comments that highlighted ability of ECB to increase bond purchases to offer more monetary stimulus as Europe continues to fight the effects of COVID. Today is more risk averse than yesterday, with equities and commodities under pressure and fixed income better bid. AS of 8:30 AM ET, after CPI, Treasuries are 1.5 to 5 bps lower in yield as the curve bull flattens, while US equity index futures are .5% to 1% lower after a soft CPI number and ahead of the cash open.
Shortly after Asia opened last night, there was a Japanese real money buyer of 10K TYZ futures from 137-21+ to 137-25+ that set the tone for the night and put a floor under the belly of the US curve. Buying was the theme last night, coming from several different sectors, and the normal Japanese real money selling concentrated in the belly over the last three weeks was noticeably absent today. The flow felt like short-covering throughout the evening in Treasuries and futures. Volume was decent but very one way.
On the pullback after the European open due to large sovereign and corporate supply calendar, flows were again better to buy in USD rate space. After last of sovereign supply priced, gilts led Treasuries and bunds higher, with better macro account buying of US 20s outright and on spread against 30s ahead of today’s 30y auction. On the other hand, swaps did see better two-way flow, with good receiving in USD 5s, 10s, and 20s early in the Asian session before Asian banks paid in 5s and 7s. Better receiving in USD 30y swaps during the European session by European portfolio types helped the USD curve flatten further, with spreads trading fairly steady this morning off the two-way flow and waiting on what fun drive-bys we might get today in the corporate market.
Asian fixed income markets continued their bounce off the carnage from early this week, with RV accounts covering shorts in JGB long end, domestic bank buying of NZD belly, and real money lifting of Aussie 3s and 10s. JGBs closed the session -.5 bps with long end outperforming, Aussie 10s were 8.5 bps lower, retracing half their early week losses, and Kiwi 10s rallied 1.5 bps. Asian stocks were mixed, NIKKEI up small while Chinese shares were slightly lower.
Europe was about digesting a large supply calendar, offset by the dovish fixed income comments from Lagarde yesterday. 10y gilt auction had a bigger tail but decent bidding while the 30y gilt auction went very well. Italy issued in 3s, 7s, and 15s (and just mandated a USD deal!), while Ireland issued in 10y and 30y. Corporate calendar was brisk again. The lead up to supply was all concession building, while bunds were dragged higher first by positive 30y-inspired rally in gilts and then the European macro buying of Treasuries. Haven’t seen any great support for bunds, but they have joined the global bid. European equities are down between .85% and 1.49% (CAC), while peripherals are small tighter to bunds.
Today in the US, we get weekly claims data and CPI at 8:30 AM ET. Then we’ll bide our time until Powell, Lagarde, and Bailey speak at ECB Forum on Central Banking at 12:45 PM ET. OF course, right on the heels of their panel discussion, we will get to digest (another record) $27BN in new 30y to wrap up this quarter’s long end refunding process at 1 PM ET.
Big chatter late Tuesday and yesterday was the selling in EDZ0 from Tuesday (99.78+ down to 99.78, over 150K in the afternoon), followed by the JPM piece calling for sale of EDZ0 at 99.76 for year end funding Wednesday morning. There was good selling in EDZ0 yesterday and buying of puts/put spreads yesterday morning by UK macro accounts and hedge funds.
For choice today in TYZ, let’s call the range at 138-06 to 137-21+, after an overnight range of 137-28 to 137-19+. Need to get through 137-31 short term objective here first, but if the UK 30y and the apparent short-covering theme continue that should be fine. Resistance comes in above at the 137-31 level, the 138-06 objective, 138-07+, 138-14+ while support comes in at 137-25, the 137-21+ objective, 137-17+, 137-08, 137-04, 136-29.
Have a good Thursday,