After a choppy post-FOMC afternoon, market settled into better buying of US assets early in the Asian session before White House announcement of Trump plan to sign memo on new Chinese tariffs today weighed on risk and helped generate further pressure (downward!) on US yields. BoE announcement was largely as expected at the top of the hour, leaving rates unchanged in a 7-2 vote. Treasuries are flat to 3.5 bps lower in yield, with 2s10s 3.5 bps flatter and 5s30s 3.75 bps flatter, while US equity indices flail just off their overnight lows.
The Asian session kicked off to slightly better buying in Treasuries, continuing the theme from late NY afternoon; similar to late Wednesday afternoon, the buying in Treasuries was concentrated in the front end, with Asian banks receiving in USD 2y swaps, Japanese real money lifting 2s outright and RV account unwinding 3s10s flatteners. The 7 bps tightening “adjustment” by the PBOC then brought in central bank buying in 2s as well. By end of Tokyo lunch though, with focus now on stocks reversing early bid on announcement from White House that Trump would sign tariff memo today, the buying in Treasuries moved out the curve, with better hedge fund buying of TY contracts and Asian real money buying in 10s and 30s, a theme that continued into the European session. Locally, JGBs flattened on insurer buying in JGB 20s and 30s, as cross currency basis snapped tighter on suspected repatriation flows ahead of fiscal year end next week. Long end JGBs rallied 1-1.5 bps while front end of JPY curve traded flat. Australian employment data was a touch softer than forecast, resulting in further upside there, with steepener unwinds continuing to be the pain trade: 3s10s flattened another 3.5 bps to 50.0, have flattened a full 7.5 bps in two sessions. Asian equities were mixed, with NIKKEI up 1% but rest of Asia under pressure, led by China (down 1%) ahead of Trump action today.
Europe has seen mixed flows on slightly lighter volume as the market marked time ahead of the BoE announcement. There was some early macro selling of 10s and bunds, while domestic buying of OATs and SPGBs saw more selling in bunds. That didn’t last long though, as by the time European traders got comfortable in their seats, Asian real money was lifting US 10s and 30s, buxl, and some gilts. Weaker than expected Markit PMIs (all missed slightly but it added up to EU manufacturing being at 56.6 vs 58.1 consensus and 58.6 last, while services fell to 55 from 56.2 and 56.0 estimate) only added to the bid as RV lifted US 30s and unwound 2s10s steepeners in German space. Another leg lower for European equities mid-morning brought out more short covering before a little pullback into the BoE announcement. US first hour was fairly quiet, but there is better real money buying again, this time in 5y, in the minutes since the BoE announcement. European equity futures are just off their lows, down 1-1.5% across the board.
Today in the US, we get weekly claims at 8:30 AM ET, HPI at 9 AM, Markit PMI at 9:45, LEI at 10 AM, and KC Fed at 11 AM, not exactly big data but at least it’s something after three boring days on the data front. Fed speakers are taking the day off before we get a full slate tomorrow, but we do get some supply as Treasury will issue $11BN in 10y TIPs on a reopening at 1 PM ET.
Well, market did a whole day’s trade in 3 hours yesterday, backing up to 2.93% in 10s shortly after the FOMC announcement and racing back to 2.87% just before 5 PM ET. Since then, we’ve seen the second break, this time to 2.84% in 10s on our way to 2.80%. Go figure. Don’t have any great ideas here– except for selling any strength in equities. Indices are throwing off some rather bearish signals the last two weeks and yesterday afternoon just added to them. There is no “Black Swan”-type huge signal, but there are a multitude of metrics that say we are headed for a test of 2673 in the SPX, and it should happen by early next week. IF that gives way, watch out. 50/50 on that right now, but it bears watching. Meanwhile, back in the real world of fixed income, for choice today call the range in TYM at 120-03 to 120-22. The low overnight has been 120-03+, shouldn’t get through the top of value from yesterday at 120-03 or the call is wrong (obviously). Meanwhile hold there (or even better at pivot level of 120-07+) and it could get ugly on the upside. Ahead of 120-22, watch resistance at 120-10, 120-17/17+, then the 120-22 level, followed by 120-30, 121-01+, 121-09, and 121-16+. Support comes in at 120-07+ level, the 120-03/03+ level, 119-31, 119-28+, 119-23, 119-18+, and 119-14/13.
Have a great Thursday…
mjc