getting back to the grind and getting an idea of the theme…. (Tuesday)

Markets are continuing to shake off the holiday lethargy, with another relatively tame and confined trade, although tape and Twitter watching remains the theme to start 2020. As of 8:00 AM ET, Treasuries are trading roughly 1.5 bps lower in yield, while US equity index futures are very slight to better bid ahead of the cash open.

Hedge funds and levered accounts were better sellers in early Asian session, after some deal-related short covering right on the Tokyo cash open. Japanese real money accounts were again buyers of MBS, while Asian central banks were small but steady sellers of 2s and 3s to buy MBS from mid-morning in Asia right through the early morning in Europe. Asian real money was a buyer of WN contracts after the London open, buying and then disappearing. Good TYH 130 and TYG 130 call buying just before the London open. A good 10y auction in Japan helped stem some early losses for JGBs (concession for the supply and some deal-related paying in JPY 10y swaps), with that sector closing 1.2 bps higher in yield on the day. Aussie 10s were 1 bp higher while New Zealand yields were mixed to lower.

London saw better concession building early in the session for German and Austrian supply, while DMO announcement of higher gilt supply and an increased funding need sent gilts into a 40-tic tailspin that weighed on rest of majors. Gilts have made a very nice turnaround since then, within striking distance of unchanged on the combination of short covering and some real money interest to add ultra long gilts. Austrian 5y supply was sloppy but 10y turned out better, while Germany’s issuance in 10y linkers was what it was. Treasuries saw a bid mid-morning on geopolitical concerns out of the Middle East and stories about Iran planning revenge against the US. Treasuries have traded through their overnight highs, with belly leading slightly and TY contract outperforming.

Today’s calendar includes trade balance at 8:30 AM ET, ISM non-manufacturing, factory orders, and durables all set for release at 10 AM ET. Lastly, Treasury will issue $38BN in new 3s to kick off official supply for 2020.

Well, 17 high-grade and sovereign bonds (Mexico) priced yesterday for $24.55BN in new issuance on the day, above the top of the day’s expectations. Look for more of the same today, as some analysts are now raising their issuance call for the week by 20%, closer to $120BN in issuance. That helps explain some of the pressure on the market, especially as the Mexican deal was swapped out for Treasuries by money managers late in the US day. You ended up with reversal day lower patterns across the curve, as WN, US Classic, Ultra Tens all satisfied the reversals by posting lower lows from Monday during the Asian session. TY double-bottomed at 129-05, while FV and TU based above yesterday’s lows. Nothing easy to start 2020! For choice today in TYH, call the range at 129-17+ to 129-03. Support comes in at 129-05, aforementioned 129-03, 129-01+, 128-28/27+, 128-22, 128-11+; resistance comes in at 129-11+/12+, aforementioned 129-17+, 129-21, 129-27+.

That’s enough for our first day back….have a great day,