NFP to provide some distraction from politics, but for how long???? (Friday)

For at least a few minutes, we will get a distraction from the Election Coverage this morning at 8:30 AM ET. Not sure how long it lasts, but it will be a welcome respite. Markets have traded risk off for equities, FX, and commodities (crude down 2.9%), but fixed income not really responding. As of 8 AM ET, Treasuries are 1-4 bps higher in yield with the curve bear steepening, while US equity index futures trade roughly 1% lower ahead of the data and the cash open.

Not too much to write about overnight. Better Asian real money buying in the long end of the Treasury curve (20s and 30s) early in the before Tokyo lunch, partly owing to the back up in equity indices, and likely driven by the Trump press conference and the growing likelihood for the turmoil to continue via various state court systems. There was some deal-related receiving in USD 30y swaps around the same time, but rather quickly Japanese real money began selling 30s with RV accounts paying in 30y swaps and selling 30s outright as well. Better long end buying materialized when 5s30s tagged 120.5 bps, as it still seems accounts are generally short duration. That pattern continued through the European open, but RV has stepped in since mid-morning in Europe to sell 30s outright and on the curve against 5s and 7s, along with selling USZ classics against TY. Block seller of 3500 UXYZ0 (ultra 10s) at 158-22 saw client dump $512K of DV01 in 10y sector at 4:40 AM ET. Since NY has come in there has been better hedge fund selling of US classic, selling of vol thru exchange options, and RV adding steepeners against US 10s and 30s.

Not much in Asia, as yields backed up slightly, decent supply events and largely waiting on US data. Europe was more of the same, nothing overly thematic other than some small tightening in peripherals.

Aside from payrolls at 8:30 AM ET, we will also get wholesale inventories and trade data at 10 AM, finishing up with Consumer Credit at 3 PM ET.

You are really in the middle of the battlefield here. You tagged the 0.94% level in cash 10s that so many analysts have targeted on Tuesday and then bounced to 0.71% yesterday. At the current level of 0.77%, you are right smack dab in the middle of .60 and .94. Thought here is risk is to trade that 0.60% level to make all the duration shorts nervous. Don’t see that happening today, but do see cracks developing in equities that could fuel such a move in a painful flattening of course. Watch 139-04 and 138-22 in TYZ (overnight range of 139-01 to 138-26); break 139-04 and you should run up to 139-15+ quickly, while a break of 138-22 will result in a quick move to 138-11+. Would fade either of those extensions unless equities start melting down a couple days earlier than technicals argue. Good luck.

Have a good weekend,