guess we should have known BoJ can’t break its habit…. (Tuesday)

We spent most of the Asian session waiting for the BoJ announcement, with markets taking announcement as dovish, Kuroda’s press conference more mixed, and now head into the US day with Treasuries small bull flattening even as risk trades small firmer. As of 7 AM ET, Treasuries are flat in the front end to 2.5 bps lower in yield out the curve, while equity index futures are a hair better.

The entire Asian session was spent waiting for the BoJ events. Small misses for Chinese PMI (manufacturing at 51.2 vs 51.3 estimate, non-manufacturing 54.0 vs 54.9 estimate) were largely ignored in the run up to the BoJ. At 12:03 AM ET, BoJ announced that it would keep base rates at -.10%, would keep rates lower for longer, would continue YCC program, but would allow 10y rate to move in larger range. The tweaks the BoJ made are being read as lip service more than anything substantive at the moment by the markets. On the whole, the announcement was considered dovish, sparking a 3.5 bps rally for JGB 10s (to .065%), and an 8 bps rally in JGB 30s. Aussie 10s rallied 5 bps while Treasuries rallied a quick 3-4 bps. There was very good levered covering in JGB 30s and JBU8 futures, along with Asian real money buying of US 10s and 30s post-BoJ for month end extensions. There were two block buys right on the heels of the BOJ announcement: 3000 USU8 traded 142-28 at 12:06 AM ET, a lift of $545K of DV01 in 30y sector, while 3765 TYU8 traded 119-18 at 12:23 AM ET, a lift of $280K of DV01 in the 7y sector. The yen took a proper beating, while equities saw smaller Asian bourses rallying on the further commitment to easy money, while NIKKEI theoretically managed a gain (.04% only) as Chinese bourses closed mixed, torn between the bullish BoJ and bearish local data.

As Europe got going, European real money wasted little lifting US 3y and 7y cash while macro account was a better seller of US 10s and German bunds right from the open in Europe, using the BoJ to get better levels. The theme in Europe has been selling across the German curve, with 10y sector leading the way ahead of supply in bunds tomorrow, while the pressure on bunds has caused some profit-taking in Treasuries by hedge funds. European data was a mixed bag, with inflation data in France and Eurozone a bit better than estimates, similar beat for German retail sales, but slightly disappointing Eurozone GDP for Q2 offset the other data. Mid-morning in Europe the selling pressure intensified for German curve, with RV accounts selling bobls against US 5s and selling bunds outright (ahead of supply). European real money bought buxl and ultra gilts, the latter aggressively ahead of large extensions there, with that flow helping to keep US curve flatter. Just as NY walked through the door, there was renewed aggressive selling by hedge funds in schatz along with a a block sale of $1.27MM of DV01 in USU contracts (7000 at 143-00, 7:21 AM ET). The easy money concept helped to support peripherals which saw tightening and small buying against German 5y and 10y sector throughout the later morning in Europe.

Today in the US, we will get income/consumption and ECI at 8:30 AM ET, followed by S&P CoreLogic HPI data at 9 AM, Chicago Purchasing Manager’s at 9:45, while wrapping up the day with Consumer Confidence at 10 AM ET. That will be it for the calendar today as we then wait to see what the Fed brings us tomorrow ahead of the BoE on Thursday. Month end extensions will be a major part of this session on the last day of July, as ultra gilts have already made clear. US extensions are smaller than normal and much smaller than rest of the globe at .06 years in Treasuries, .08 years in Agencies, .05 years (revised from .06) in Credit, .07 years in MBS, and .06 years in Aggregate. Meanwhile, the Pan European aggregate extends .09 years, while Pan European Treasuries extend .13 years; Sterling aggregate extends a smart .23 years, while Sterling aggregate Treasuries extend an even more impressive .35 years (revised down from .36 earlier).

A lot of noise out there, and not sure it’s anything more than noise as we enter our sixth day of consolidation after Treasuries repriced lower last Monday; for witness, we stopped last night right at first resistance in TYU (i.e., 7y sector), cash 10s, and USU before profit-taking ensued. Don’t see us exactly breaking out of the range here today, although I can always HOPE for a trade to 3% in cash 10s still. All right, for choice today in TYU, call the range at 119-24 to 119-10, and yes I get that 15/32s inclusive might be a bit of a reach today. Support comes in at 119-12, then the 119-10 level, then 119-08, 119-01, 118-29, 118-26+, 118-18+; resistance comes in at 119-21, the 119-24 level, 119-27, 119-30+, 120-02. Don’t think vol catches any bid today, and probably stays offered into early tomorrow, but it is definitely time to be covering any shorts left out there and to be thinking about adding a decent amount of vol by Fed time tomorrow because the week gets busy on the back end.

Have a good Tuesday,