“Coming of Age” Day in Japan mutes activity, small risk on in Europe (Monday)

The “Coming of Age” Holiday in Japan caused the Asian session to be an extremely quiet affair, with cash Treasuries closed until 7 AM London time. The growing likelihood of a BoE cut as early as the 30 Jan meeting has helped inspire a risk on theme in Europe, especially London, with Treasuries coming under mild pressure, albeit on lighter volumes. As of 8 AM ET, Treasuries were 1-2 bps higher in yield led by the long end, while US equity index futures were marginally higher ahead of the cash open.

There was almost nothing worth commenting on for Treasuries during the Asian session, with small two-way flow in 5s (Asian bank selling while Asian real money account lifted against selling 10s), as TYH was confined to a 129-03+ to 129-01+ range until the London open. The only news during the Asian session was a sloppy, poorly-bid Australian 10y auction; that said, Aussie 10s took their lead from Treasuries on Friday, opening 2 bps lower in yield, rallying to 4 bps better into the auction, and closing 3.7 bps lower in yield despite the tepid demand for the Aussie paper. New Zealand rates rallied 1.7 bps in a trade completely devoid of any notice. Australian stocks fell by .4%, but rest of the Asian bourses that opened rallied between .5% and 1.5%.

Treasuries were under pressure from the outset in Europe, pressured by early better risk sentiment in Eurozone. Bunds were soggy from the outset, with deal-related selling in bunds along with paying in EUR 5y and 10y swaps. Treasuries saw RV account selling of cash 30s outright and on the curve against 5s in USD swaps. Gilts meanwhile have endured a soft revision to the November GDP figure that combined with Vlieghe comments (needs to “see an imminent and significant improvement in the UK data to justify waiting” on further rate cuts, seemingly putting 5 votes in the next move being a cut camp) to bid gilts in opposition to bunds and Treasuries. There was some hedge fund buying of gilts outright, small RV buying of short sterling reds against Euribor reds, and asset manager buying of 5y gilts. Nothing was huge, although there was good hedge fund activity in short sterling options: looks like rolling of put positions in whites and reds and outright adding of call structures in reds. There was better volume and activity in short sterling options so far today than anywhere else for the fixed income universe. NY didn’t change things much when it arrived, as Treasuries were pinned to the their lows before a buyer of TY to sell RX helped Treasuries bounce a tic. There was a block seller of 6302 RXH0 at 8:06 AM ET for a price of 171.04 (EUR 980K in DV01) that has left bunds the clear laggard on the day, down .32, while gilts are .48 higher and Treasuries are down 2/32s (.06). European equities mixed to small better ahead of the NY cash open.

Today’s calendar brings us the Monthly Budget Statement at 2 PM ET, while Fed speakers include Rosengren at 10 AM ET and Bostic at 12:40 PM ET. That’s about it for today’s entertainment.

So, that was an interesting day on Friday, with no joy for anyone. Can’t get a break, fail against resistance to negate bearish signal…you get the idea. So today is likely about dealing with a quiet day after a mildly constructive Friday, probably means we will make a run on no volume in the next hour or so. Odds favor a test of bottom of Friday’s value ranges, with a likely hold and drift up to Friday’s highs where the real fun would begin. Take out Friday’s bottom of value and we will take out Friday’s lows, returning to the pattern initiated late Weds and Thursday. Let’s see. As for choice today in TYH, call the range at 129-07 to 128-26, but that all goes poof if we take out the 128-26 level (bottom of value from Friday) in the next 90 minutes. As for support today in TYH, watch 128-26, 128-21+, 128-19, 128-14, 128-11, 128-06; as for resistance, watch 129-00, 129-02, 129-06, the key 129-10/129-17+ zone, 129-26, 130-00+.

Have a great day,