GDP and Treasury options expiry on this quietly nervous Friday morning…

While market awaits today’s US GDP number, we traded in a tight overnight range for most instruments globally on lighter volumes ahead of the weekend and a busy week ahead. As of 8 AM ET, Treasuries are flat to yesterday’s marks with US equity futures roughly the same and the dollar index slightly better but well off its highs of the night.

Treasury flows started light in Asia and stayed that way throughout the session. After opening flat and holding for the first few hours, Treasuries were pulled lower by the absence of the BoJ at their normal first buyback time, increasing speculation that the BoJ would alter buyback scheme at next week’s board meeting. There was better hedge fund selling of US 10s as JGB 10s broke lower; however, when BoJ showed up to do a purchase program at the second window after Tokyo lunch, the early losses (and new lows for the move in Treasuries) were quickly erased, with Japanese credit desks buying 30s, Asian real money lifting 10s and local Asian banks lifting 5s. Treasuries climbed back to unchanged into the European open. Locally, the BoJ bought 10y JGBs for .10 yield, as opposed to the .11 yield they had been buying earlier in the week, but JGBs still closed lower on the session, with bank selling of 10s driving the market lower after the buyback. Aussie rates outperformed on domestic real money buying outright and against US 10s. Asian stocks traded slightly better across the region, except for a minor correction in Chinese shares, in an otherwise nondescript session.

The European session has been devoid of any uptick in volume with focus on supply and politics in places like Spain. Early flows saw better leveraged short covering in bunds after European rates repriced lower on the open but the buying was met with better selling of bobls outright and on the curve, ahead of a decent amount of supply in that sector next week from several peripherals and corporates. Gilts have traded quietly throughout the session, largely following the moves in bunds. Treasury flow has been non-existent since shortly after the European open, with only flows being minor adjustments on the curve: real money adding some duration (month end on Tuesday) and hedge fund adding 5s30s steepeners in USD swap space. Talk of political issues growing in Spain gave bunds a safe haven bid mid-morning in Europe, with EUR coming under renewed pressure on the news. Since mid-morning, core fixed income markets have largely traded sideways, waiting on the US. Even since the US walked in, flows in Treasuries have yet to pick up.

Today’s calendar includes the much anticipated GDP report at 8:30 AM ET, followed by Michigan at 10 AM. There is no more Treasury supply this week, and the Fed is in the blackout period.

There is however monthly (August) options expiration in Treasuries today and an interesting note in TY:


17          118.75          6K

16K         119.00        61K

3K         119.25        19K*** AT THE MONEY AS OF 7 AM ET

35K        119.50        74K

11K        119.75        20K

The point here is that the 119-00 strike has yet to be traded (as opposed to the 119-16 that has been traded all week) and has the biggest put/call disparity. Even more interesting is the fact that we made a new low for the move overnight, stopping right at 119-08; had we gotten through there, we would have traded 119-00 in a heartbeat. Take out 119-08 today and you know where we are headed. So for choice today in TYU, call the range at 119-16 to 119-00. Support ahead of 119-00 comes in at the overnight low 119-08, 119-01, 119-00, 118-28, 118-26+, 118-18+, 118-16; resistance comes in at 119-16, 119-21, 119-24, 119-29+/30+, 120-02. Don’t think that gamma will cheapen today ahead of next week’s calendar, but if someone starts a program later in the morning, would be a time to add a bit more here on someone else’s generosity.

Enough writing for this week….have a great and restful weekend,