interesting announcement by BoE upsets apple cart, adding to risk off…(Thurs)

Risk off has been a theme since after the FOMC announcement yesterday, and that has continued into the US open today. BoE statement this morning at 7 AM ET has potential to roil funding markets beyond UK as well, as the bank highlighted planning for negative rates. As of 8:40 AM ET, Treasuries are 1-4.5 bps lower in yield with the curve bull flattening, reversing yesterday’s post-FOMC steepener. Go figure. Meanwhile, US equity index futures are struggling again, down 1.5-2% ahead of the cash over, with Trump’s comments on TikTok only adding to the pressure on risk assets.

Treasuries opened steeper in Asia, after having steepened post-FOMC yesterday, but slightly better buying out of Japanese asset managers in the long end and some small receiving interest in USD 30y swaps helped lessen the steepening as the session wore on. Flows in Asia were two-way, concentrated in the intermediate sector. Asian bank was better seller of 10s, while paying in 10s outright and on the curve against 2s in USD swaps. There was Japanese real money buying in 10s, but better Asian real money selling of 10s and 30s, as Treasuries traded in a tight range throughout the Asian session. Central bank lifted 20s and handful of spread product, as they do virtually every day, into the European open that helped bid Treasuries. Bounce in equities mid-morning in Europe helped take Treasuries off their highs, but that was short-lived. Since BoE announcement, Treasuries have been dragged higher by the power moves in UK and EU rates. There has been some real money buying of 10s and 30s since NY arrived, along with fast money account adding 10s30s flattener while RV account got a jump on next week’s auctions by adding 2s10s and 5s30s flatteners on the curve, as US curve has quickly flipped from steeper to now 3.5 bps flatter out to 30y.

Asian session highlight was a large beat in Aussie employment: 111K jobs were added versus expectations for 35K loss. Markets paused momentarily but the dovish backdrop of global rates and very good demand for NZ 3y supply kept rates bid. JGB yields closed down .5 bps, Aussie rates were down 1.5 bps and Kiwi yields were down 3 bps after the strong auction. Asian stocks traded slightly to risk off, with Chinese shares leading the move lower (down between .3% and .8%, but Hang Seng down 1.5%).

Bunds started the rally in Europe, as supply was easily digested on the sovereign front and corporate calendar was dealt with again. French auction in 8y went well, while 3y and 6y supply was easily digested as well. Spanish 3y and 7y met with very good demand, while 11y TAP and 30y went fine as well. There was deal-related receiving in EUR 5y and 25y swaps, along with outright buying of bunds; real money was a better buyer of schatz and bobls mid-morning in Europe. The only pullback in bunds was on a large sale order (6K RXZ sold from 174.06 to 173.98), but bunds quickly bounced back. Spain is leading small peripheral tightening after good reception for its supply. Meanwhile, BoE announced no change to rates as expected but followed that up with statement that the committee would conduct “a structured engagement” with the Prudential Regulation Authority on the subject of how negative rates could be implemented. Back end of sterling whites and all reds jumped a quick 5-8 bps well through zero bound on this part of the announcement; gilts aggressively bull steepened, underpinning bullish sentiment in EU and US rates as well.

Today’s calendar includes claims, housing data, and Philly Fed at 8:30 AM ET. At 11 AM ET, Treasury will announce composition of next week’s 2s, 5s, and 7s, while at 1 PM ET Treasury will auction $12BN in reopened 10y TIPs.

Been a few weeks since we had anything meaningful to write about. Sorry about that. At least today, we have to sound the soft alarm that the BoE may just have put the Fed in play, or at least has given us a reason to pay attention. Meanwhile, Treasuries are so hard to watch and even harder to trade these days. Another time we will talk about the Big Bang event and its implication on trading, which is to say it is killing the product. Some would say the CME deserves that for messing with the system. But I digress. For choice today in TYZ, call the range at 139-26+ to 139-16 (see what I mean???? Everything returns a 4.3 bps range!!!), after an overnight range of 139-20 to 139-11+. Support comes in at 139-16 objective, 139-12+, 139-06/06+, 138-28; resistance comes in at 139-23, the 139-26+ level, 140-00+, 140-10.

Have a great Thursday,