markets trade better to risk in brutally boring session….(Monday)

US markets trade better to risk on as we kick off the first official week of summer, and volumes certainly indicate that people are slow to get back trading today. US risk opened flat but jumped higher mid-day in Tokyo on story that Beijing only reported nine new positives for COVID-19 on Sunday. Risk hasn’t looked back since, but rest of globe is a bit more guarded. As of 8:00 AM ET, Treasuries are trading flat but slightly better to flattening on zero volume, while US equity index futures are trading almost 1% better but well off their earlier highs.

Treasuries traded quietly to start the session, slightly better bid on some Japanese real money buying of US 30s and some small CTA buying of US classic contracts as the curve flattened slightly. Volume never picked up in Asia, but Treasuries slowed bled back to unchanged on the Beijing story, trading either side of unchanged from Tokyo lunch through the European open. US 30s have traded in a 2.5 bps range (1.445-1.47) and 10s have traded in a 2 bps range (.682 to .702). Obviously activity didn’t pick up much in Europe, although bunds have led a stealth rally across the continent there. Some selling of TY contracts against RX (bunds) by hedge fund along with selling US 2s by European central bank, with RV selling of 5s outright and on the curve against 30s have been about it for flow. TY contracts only broke through 200K in volume in the last 30 minutes ago.

Asian session saw a solid to bid for AOFM TAP of AUD 2BN in 4/24 issue, continuing the demand theme, while JGBs put in a decent day as the BoJ was buying belly of the curve. JGB 10s closed the session .5 bps lower in yield, Aussie 10s were flat, and Kiwi 10y yields were 1 bp lower in a very quiet session. Asian equities saw mixed session: NIKKEI (-.2%) and Hang Seng (-.5%) lower, with CSI (+.1%) and Shenzhen (+.3%) better.

Europe has all been about bund rally. There seemed to be a shortage of supply for ECB to buy, with PEPP/PSPP buying further underpinning peripherals. Shortly before NY arrived there was a large buyer of schatz contracts, with bund support throughout the session being from European real money supposedly (please stop) getting an early jump on a large month end extension in Europe. Volume in spite of the bid is nothing special, as seen by a buyer of 8K RXN 173.5/174.5 put ratios (2.5-3 for price) helping to put a lid on bund bid. That doesn’t explain the bid to UK rates, but BoE governor Bailey comments that balance sheet needs to fall BEFORE BoE considers raising rates, seems to have engineered a bull steepener in gilt market. European equity markets are mixed to slightly lower, finding support from the bid to US equity index futures.

Today’s calendar includes CFNAI at 8:30 AM ET, followed by existing home sales at 10 AM. There are no Fed speakers on tap, with just 3m and 6m bills from Treasury before we start month end supply with tomorrow’s 2y auction.

One thing to get out of the way early. Commitment of Traders report showed the largest speculator net short in almost a decade. This is not news, as I have no less than a dozen pieces written about this since Friday afternoon. We KNOW specs are short index futures, and we know investors are woefully stuck in cash. Those are the ONLY reasons that support these levels in equities, albeit driven by an easy money policy. No idea how when this ends, although badly will likely be an understatement, but there is no way you are supposed to sell index products right here. The divergence with rest of globe on the US index highs today was frankly startling. There is a gap in ESU0 (emini) up to 3327 from Feb 21. Amazingly that seems like a legitimate trade to clean out these bad positions. Jeeeez….

Enough bitterness. For choice today in TYU, getting a weird 139-00 to 138-20+ range after an overnight range of 138-29+ to 138-22+. Don’t know there is enough interest to make a new extreme and then trade 3/8 point after! But we’ll see. Support in TYU comes in at 138-20+ objective, 138-17+, more important 138-10 level, 138-01+, 137-30+, 137-21; resistance comes in at 138-28+, 139-00, 139-06+, 139-09. I am going home.

Good luck today, could be a long one,