It has been a fairly quiet night, slightly skewed to risk on given the optimism over US trade negotiations with Mexico and China, although neither has resulted in anything resembling a formal accord. Banking holiday in the UK has further dented volume and activity as Treasuries are largely shuttered in Europe today. As of 8 AM ET, Treasuries are flat to their 3 PM marks, 1.5 bps worse than their late 5 PM marks from Friday; equity index futures are tracking above their recent highs ahead of the cash open in today’s risk-friendly environment.
Flows saw better real money selling of 10s from the outset in Asia as Treasuries surrendered much of their late Friday gains. There was some RV selling of 5s ahead of this week’s supply, with hedge fund putting on 2s10s flatteners after Tokyo lunch. Volume remained light. After Tokyo lunch, pressure on USDJPY resulted in some minor short-covering in belly of Treasury curve while Asian real money added some 30s ahead of month end extensions. Locally, JGBs rallied, led by real money buying of 30s and 40s in cash, as Japanese Treasuries are set to extend an outsized .19 years this month. Asian equities were a sea of positive results, with gains between .8% (NIKKEI) and 2.4% (CSI, Shenzhen) as US equity futures traded higher as well.
The European session has been dull to say the least with London out for the bank holiday; there will be no libor setting today either. The main event today was a 7-year high print for German IFO index (103.8 vs expected 101.8) that took bunds to their lows of the session and pressured Treasuries as well. Volume remained light given the London holiday, but macro account was better seller of bobls before the release and then better seller of buxl after. Dealers sold bunds, but European real money used the pullback to add bund and buxl ahead of month end. There were no themes to the Treasury futures move as it was more a repricing after the bund move with Treasuries closed. Risk theme continues in Europe with all major indices tracking higher and US now set to open at new all-time highs if things remain the same for 90 minutes.
Today’s calendar in the US includes Chicago Fed (CFNAI) at 8:30 AM ET, followed by Dallas Fed Manufacturing at 10:30 AM. There are no events or appearances scheduled for today as of now. Activity will pick up throughout the week given month end supply and futures’ calendar rolls but today will be a good day to catch up on paperwork. Speaking of month end, Barclays’ latest revision for USD products shows Treasuries to extend by .11 years, agencies by .18 years, credit by .06 years, MBS by .06 years, and the aggregate by .09 years. The Pan-Euro and the Euro aggregates both extend by .02 years, while sterling aggregate and Treasury take this month off after some huge extensions the past few months; both are call unchanged over the month.
It is going to be a long and boring day for anyone trying to trade fixed income today. For choice today in TYU, let’s call the range 120-21+ to 120-15+. Risk early today is to trade through the 120-15+ after stocks open but downside should be limited to 120-12; on the flipside, if something happens that causes us to take out 120-21+, it could get ugly that way. Resistance comes in at 120-24/24+, 121-01, 121-03; support comes in at 120-13+, the aforementioned 120-12, 120-06, 119-31. Volatility is getting taken out to the woodshed again this morning, and our recent view of adding small slices of vol is taking some flack after the last four sessions, but not enough to give up the view. Every dog is bound to have it’s day….. I hope.
Have a good Monday,
mjc