Markets are trading small risk off this morning, although there has been a retracement since NY arrived. As of 8:00 AM ET, Treasuries are 2-3 bps lower in yield, well off their low yields of the session, while US equity index futures have more than halved their losses to currently trade down .25% ahead of the data and the cash open. “No commentary Friday” rule in place, so a couple quick observations instead:
*Apple warned overnight that AirPod production may be at risk from Coronavirus, while Toyota and Nintendo both issued profit warnings because of the outbreak, fueling a risk off trade ahead of the NFP report.
*IP numbers in Germany and France were both extremely soft, adding to the risk off sentiment.
*Some small Japanese real money buying of 10s during Asian session, then better levered money buying of 5s and TY contracts on the German IP number. Generally speaking, there was little thematic trade save what looked like positioning ahead of the NFP report.
*Story that China is delaying factory workers’ return to plants (was to be Feb 18) in Wuhan broke just before large buy volumes came through in RX (Bunds, 9K contracts traded from 174.25-174.30), FV (20K contracts from 119-25 to 119-28), and TY (50K contracts from 130-26 to 130-31). Volume for the evening went from mediocre to solid given that activity.
*With 10y FOA trading just north of 4 bps today, that’s pretty cheap, even against the recent average. So…I would sell it. The number is a nonevent, the market’s focus is on global events right now.
*Lastly, don’t forget we get the first leg of the quarterly refunding beginning Tuesday. There was a good effort to build in concession for the 3s, 10s and 30s yesterday, but that has largely been negated today. If the number is the nonevent many are expecting and Treasuries sit here without any tape bombs from Coronavirus, then look for an effort to build concession along with some rate-lock selling for a growing issuance calendar next week.
So here’s my extremes for the day in TYH: 131-12 and 130-04+. If you take out either of those, better pay attention. Would sell any move to test 131-04+ first time and buy any trade to 130-09. For choice today in TYH, let’s call the range at 130-29+ to 130-09. Remember that we ended last week with a major risk off move; Treasuries then made new highs Sunday night/Monday and have drifted lower since. Close around here and it’s a pretty bad week on the chart for Treasuries (trust me, every dealer in the world is showing clients this, praying to get help for a concession). Later this afternoon if vol cheapens up, be worth looking at that USH conditional call structure again. You haven’t gotten hurt owning it this week, and the fun is far from over.
Good luck out there today and have a great weekend….