good appetite for TYM during Asia, watching stocks and basketball now (Thursday)

Risk appetite has turned up slightly during European morning after taking a small beating during the Asian session; now we’ll see if US equities can break their 3-day losing streak. Treasuries are being led by the 7-10y sector, better bid on good real money demand, while front end continues to lag. US equity futures are trading slightly better ahead of the cash open.

The Asian session was all about flows in the TY contract, and it was almost all skewed to buying. The session kicked off with some minor hedge fund short covering in TYM contracts and then a block trade of 6580 TYM8 for 120-18 at 7:54 PM ET, a lift of a clean $500K in DV01 for the 7y sector. Following that, there was fairly aggressive Asian real money buying of TY contracts throughout the rest of the session, with some early US equity future pressures adding to the bid tone. A good 20y auction in JGBs brought out buying of the 20- and 30y sector of the JGB curve, with some RV buying of US 30s, but 7y sector continued its marked outperformance. Asian equities were mixed, holding better than expected after the US selloff: NIKKEI was up .1%, Hang Seng up .56%, China was mixed as were the rest of the Asian bourses.

Early European trade saw some concession building ahead of a large official supply calendar today, with bunds under greatest pressure early in the session. Some of the outperformance in TYM was alleviated via a block sale of 10,428 TYM8 at 3:50 AM ET, client dumping a chunky $794K of DV01. Dealers were better seller of bunds early, with RV account selling 10y gilt sector and Spain. Macro account lifted US 5s, while European real money rolled out the US curve from 2s to 5s. Spanish auctions were the first to price, and that didn’t go well as demand for the 5s, 10s, 15s and 20s all was on the tepid side, with Spain being sold further after the pricing; SPGBs are currently anywhere from 1.5 to 2.4 bps wider to core across the curve. Meanwhile, French supply was well-received in 3s, 5s, and 7s, meeting with decent demand and aggressive pricing, allowing French yield changes to match bunds. UK 10y gilt didn’t see much of a concession, but still went fine. Risk took a slight move firmer after the supply, dragging bunds and Treasuries back toward unchanged, as European equity indices have now dragged US index futures into the black ahead of the US open. Activity has been muted since US walked in, with small two-way flow in TY and 10y sectors: RV accounts axed to sell against 30y but real money continuing its support of TYM.

Today in the US, we get weekly claims data, Empire Manufacturing, Philly Fed, and import/export prices at 8:30 AM ET. NAHB Index will be released at 10 AM ET, and TIC data will print at 2 PM. Long before then, market activity will plummet as first college basketball games tip off at 12:20 AM ET.

Well, it was pretty much about equities yesterday during the US session and during at least part of the Asian session. Another positive overnight for stocks yesterday turned into a pumpkin for the third session running. With the better risk sentiment mid-morning in London, we amazingly have a chance to go 4-for-4 so far this week. Oh great. This could be noise or it could be something more important, but here’s what bears watching: will the market take out 2673 in the SPX (index, not futures) before the FOMC next Weds? If that happens, we could be onto something, but if it holds this will be noted as yet another minimal correction within a simply inexplicable moonshot rally in equities. As for fixed income, it does nothing wrong day after day right now, ever since Friday’s NFP release. For choice today in TYM, call the range 120-12 to 120-27+. Support in TYM comes at 120-15+, the aforementioned 120-12 level, 120-09+, 120-04+/03+, 120-01, 119-26+, 119-18+; resistance comes in at 120-22, 120-24, the aforementioned 120-27+, 120-30, 121-01+, 121-12+.

Have a great Thursday and good luck to your basketball team…