While the greenback trades under pressure, both equity index futures and US fixed income are trading better to kick off what should be a busier week in the US. Big helping of Treasury supply all front loaded today and tomorrow, FOMC meeting on Wednesday, first look at what should be a record shattering contraction for US GDP, and month end all on the table this week. As of 8:00 AM ET, Treasuries are .5 to 1 bps lower in yield with intermediates outperforming slightly, while US equity index futures are off their best levels of the night but still marginally higher ahead of the cash open.
Treasuries chopped around for the first half of a quiet Asian session, with Japanese traders returning after being out the second half of last week. Dollar came under renewed pressure into Tokyo lunch, and Japanese real money came back from lunch to buy US 30s and receive in USD 30y swaps, no great shakes but definitely better bid. The weakness in the dollar has been highlighted since Friday by a couple dealers as a potential bid-event for Japanese accounts at this week’s supply. There was some Asian asset manager buying of 2s and 5s into the European open that certainly looked to buttress that argument, as we normally don’t see that flow when they can just buy them at auction later today. Central bank lifted 10s and mortgages into the London open as well, while Asian bank sold 2s and paid in USD 5y swaps.
The European open saw a slight uptick in volume for Treasuries but nothing to write home about. There was better buying of EDU0 contracts, some 10K between 99.765 and 99.77, after JPM revised their end of Q3 call for 3m libor from .25% to .20%. European real money bought US 10s and 30s after the London open, but better German IFO data brought out some selling from macro accounts in 2s and 10s, with better bank paying in USD 5y, 7y, and 10y swaps. The pressure didn’t last long as London hedge fund sold gilts to buy US 10s, and European money manager lifted US 7s and 10s. RV has shown up in the last hour setting shorts in WI 2s and doing WI 2s5s flatteners (very interesting concept there with supply in both).
Locally, the Asian session saw some early pressure on domestic markets ahead of tomorrow’s MoF 40y auction and AOFB 6/51 syndication. BoJ QE operation helped bid JGBs back, while launch of the Aussie deal helped steady rates there. JGBs closed .5 bps higher in yield in their first trading day in almost a week, while Aussie 10s closed 2.5 bps higher in yield and Kiwi rates closed .5 bps higher. Asian equities were mixed in an otherwise quiet session, with NIKKEI down .16%, China indices between .5% higher and .4% lower, while rest of Asia largely marked time.
Good IFO survey (90.5 vs expected 89.3) helped risk in Germany for most of morning, but rest of Europe trades defensive to risk off, especially given what looks like the growing COVID crisis in Spain, as UK bars all but essential travel to the country. German equities finally gave up the last of their early gains to trade negative in the last hour. Bunds opened softer, but quickly reversed on the Spain issue, with macro account aggressively selling SPGB 5y to buy bobls. Peripherals underperform Germany, but that’s mainly about the demand for German paper while peripherals sit largely unchanged, in pretty light day for flow. Italy and Portugal have started leaking wider in the last two hours as well so the afternoon could get a bit more interesting. The UK ban on travel to Spain seems to have engineered a seemingly larger risk off sentiment in the UK, with better levered covering in front end of the gilt curve and asset manager buying of UK 10y, while receiving in GBP 20y swaps. Spanish IBEX (-1.7%) is pulling rest of European equities lower.
Today’s calendar includes already released durable goods orders (+7.3% vs expected +6.9%, but ex-trans was a bit disappointing as market largely ignored the release) and Dallas Fed Manufacturing at 10:30 AM ET. So yeah, nothing really, and Fed is in blackout. Instead, there is a proverbial buffet of Treasury supply for you to choose from: $51BN 6m bills and record-size $48BN 2y notes at 11:30 AM ET, followed by a dessert of $54BN 3m bills and another (!) record $49BN 5y notes at 1 PM ET. Enjoy because tomorrow brings a similar offering, and today’s corporate calendar is growing quite quickly, thank you AT&T.
So no idea whatsoever, zero, zilch, nothing of what is going on in this market. Friday made it official. Slept through options expiration when almost everything said you should try to trade up to 140 strike in TY futures. NOPE, sorry, try again tomorrow. ARGGGHH. Should get a concession for all this supply today and tomorrow, but all the sudden a weak dollar is gonna generate massive bids. Really???? Go figure. I am going on sabbatical (used the vacation idea too many times already), and see if I can find that clue salesman guy. But enough whining. For choice today, staying so objective to the numbers that it hurts, call the range in TYU at 139-30+ to 139-18, after an overnight range of 139-24 to 139-17. Support in TYU comes in at 139-20, 139-17 objective, 139-12/11, 139-07, 139-01+, 138-28; resistance comes in at 139-24 (overnight high as well), 139-29 objective, 140-02, 140-06, 140-08, 140-14.
Have a good Monday and watch out for that dump truck with US Treasury logo on the side,