It’s “no write Friday” plus the whole Chinese New Year holiday/virus and everything else in this crazy world. But, will take pains to point out a couple things ahead of the second month of the year. As of 8 AM ET, Treasuries are largely flat after trading as much as 4 bps higher in yield during the Asian session. US equity index futures are trading down just over .5% ahead of the cash open, a rather common occurrence this week. Let’s see what happens.
*Month end extensions, of which we saw some yesterday morning already, show Treasuries extending .07 years (slightly less than the .085 average over the last decade), MBS extending .06 years (nothing like a little rally), Euro govies .10 years and gilts .29 years (above average but consistent with recent trend).
*China is scheduled to return Monday after a three-day extension to the Lunar New Year holiday. A50 futures indicate that Chinese stocks would open down 7.9% here if they opened right now. Even good service Chinese PMI and in-line manufacturing PMI overnight did very little to help A50 futures, as the focus obviously remains Coronavirus. If there is any more negative news over the next 36 hours, might see a further delay to the reopening in China.
*Japanese accounts have been better sellers of US 30y all week, with Asian real money selling WN contracts and 30s last night as well. The Japanese trade is consistent with the program begun in the last month of 2019. This gets interesting for the long end when one considers that many Asian accounts expected to be able to add their month end duration today, but with China unexpectedly closed, that buying may not be seen until Monday.
*Much of the selling out of Japan has been against moving into the belly on the curve, but also has been used to add MBS and other spread product especially in the case of Japanese lifers desperate for extra yield. That really picked up Tuesday night, and this past evening was no exception. Asian central banks were again sellers of the belly to add MBS as well last night, a trade they have been plying for months now but which has picked up again recently and likely accelerates again next week, thanks to all the liquidity slushing around.
That’s enough for now. Leave you by noting cash 10s traded as high as 1.5975% overnight (on the lows, TYH traded 130-30, down 12/64 just after Tokyo open), bumping up against everyone’s highlighted 1.6% level, before sliding back down to unchanged. Lot of noise here, everyone trying to catch the “move” but think we are stuck between 1.5% and 1.7% until closer to next Friday. Given my lack of understanding the market these days, that probably means we get a 2-SD move today and follow through on Monday!
Have a good weekend and hope your team wins the Super Bowl, or your squares come in….