illiquid, range bound, funding not as smooth as Fed would like…ohoh (Thursday)

Markets trade with their lowest volume and activity since end of year holidays. This has been the case for over 48 hours now, and it doesn’t look to stop anytime as soon as we trade the proverbial “student body left/student body right” moves that get us no thematic direction. That will change, for better or worse. Claims were the nonevent we expected, just “wow factor” as the big claims data will be in two weeks when we see what continuing claims look like after the stimulus bill passed last night and effectively pays employers to keep people on the payroll. As of 8:45 AM ET, Treasuries trade 2-9 bps lower in yield in a month-end/short covering bull flattener, while US equity index futures continued to trade in a relatively tight overnight range, down just under 1% 45 minutes before the cash open.

Since I have managed to get myself locked out of the offsite and am working from a laptop, here are few relevant bullet points for today:

*Volume and activity last night were at new low extremes for the crisis. We just broke through 200K TY contracts after 8 AM ET; that is worse than end of year volumes! You can drive a truck through some markets, with products like WN (ultras) and UXY (Ultra 10s) showing gap trading. Same for credit markets in Europe today.

* Treasury curve is bull flattening here, but largely a phenomenon of illiquidity and month end. There was some effort by Asian real money to buy 10s and 30s but they could only get off small sizes. There was a $250K TU/FV steepener that went through at 3:32 AM ET, client buying 6800 TUM (110-05.125) to sell 5000 FVM (124-24.25) to take advantage of the overnight flattening. But curve holds flatter through US open, even as RV accounts attempt to fade. European fixed income well bid on PEPP facility getting up to speed. Italian banks are now buying BTPs (but not at auction as those affairs went poorly today). Peripherals tightening, but bunds and gilts are also trading 3-4 bps lower in yield from yesterday. Dollar stubbornly won’t budge no matter what CBs do, so those types were of course buying 2s and 3s overnight as usual (rewrite the econ books).

*Powell spoke in an interview for NBC’s Today show at 7 AM ET. He didn’t say anything new, did highlight that he doesn’t think the Fed has to worry about inflation (he only wishes!)

*3ml jumped 10.76 bps to 1.37463%. Part of this may be because of Japanese fiscal year end and the fact that this fix carries us through some Q2 ends for 3m, but it was a higher set than market expected. To that end, will remind you about the note we threw in yesterday on HY and CDX spreads. Someone is calling rat out there.

*JP last night saying $850BN of stocks that need to be bought for month-end rebalancing, with Wells Fargo saying $40BN in bonds sold. Everyone is calling for nasty trade to 2700 in SPX. Think this is one of those times where you sit on your hands, and if you get 2700, you’ll actually get 2820 because guys will get too cute shorting the market on the “buy rumor, sell fact” trade, and THEN you sell daylights out of 2820s…. FWIW.

*Okay, claims and bunch of other data we don’t care about. After the stimulus announcement yesterday, claims are just there for the wow factor today. We’ll see how small employers respond to this carrot from the bill. Get the usual POMO and market will watch for the $32BN in new 7y at 1 PM that will wrap up this weeks issuance parade.

*Mike Clifford just put out option expirations for April Treasuries that go off tomorrow. If you don’t see it, let him, Andy or me know. Take a look but it may be moot given the recent range over the last 10 days.

Good luck, be well, and I gotta go find a key to get into my office….