nice to view glass as half full for once in very quiet risk on trade (Monday)

We open this holiday-shortened week to better risk bid in markets, the sentiment generated by what appear (and hopefully are!) signs that the rate of spread for the COVID-19 virus in the hot spots of Spain, Italy and New York appear to be leveling off or even decreasing. While it will take more than just a day to confirm, a little good hope is always welcome.

As for the markets, we continue to trade quietly to start this week, and that won’t change. After a simply abysmal end to last week for liquidity, volume and participation, don’t expect anything different this week ahead of Passover (begins Wednesday at sundown) and Good Friday. There is official supply across much of the globe, having started today and wrapping up by Thursday, while we are already seeing a rush to issue in Europe and the US ahead of Wednesday afternoon. As of 8:15 AM ET, Treasuries are 2-5 bps higher in yield in a bear steepener while equity index futures trade roughly 3% better ahead of the cash open.

The market resumed trading last night with equities up slightly better than 1% on the hopeful COVID-19 news, while Treasuries opened 1-2 bps worse in a bear steepener. Crude meanwhile was down 10% while UK Brent opened down 12% on the news from Saturday that today’s OPEC+ meeting was postponed until at least Thursday after more distrust between Russia and Saudi Arabia. This time though the markets paid all its attention to the pandemic and very little to OPEC. Flows in Asia were light at best, with no volume for the first hour and only marginal interest after the rest of Asia arrived. Again, swaps were the most active sector of the market, with some Asian bank paying in USD 5y swaps and some deal-related paying in US 10s. The long end of the swap curve saw better interest to receive, with Asian real money account receiving in USD 30y swap outright but levered account plying 10s30s swap flattener. Treasuries saw only some central bank buying of 2s and selling related to the paying flows above. Once the market found a level shortly after 8 PM ET, Treasuries flat-lined within a single bp range until Europe arrived.

Locally, Asian fixed income markets were all under mild pressure ahead of both sovereign and corporate issuance this week. New Zealand issued 10s today, with rates backing up 3.5 bps to accommodate the supply; Japan will issue in 30s tonight, as curve steepened ahead of the issuance, 10s up 1 bps in yield but 30s up 2.5; Australia conducted a 2y tap that was met with solid demand, but rates backed up as the heavy lifting will take place out the curve with long-dated issuance coming the rest of the week and several corporate deals announced today to price this week as well, with yields in Australia backing up 1.25 bps in the 10y sector. As for equities, Asian bourses were up between 2% and 5% in a risk-friendly environment.

Things didn’t pick up much in Europe. Early and aggressive selling of long end in Europe as issuance calendar grew quickly, spreading to Treasuries and pushing US yields another 2 bps higher, from where we again have largely flat-lined. There was deal-related selling in bunds and buxls from the outset in Europe, but the hedging has also been happening in bobls (5y) in the last two hours. There was RV selling of 3s5s10s gilt fly (selling wings) in London ahead of MPC issuance as well that got some attention, along with macro account selling 10y gilts outright. The risk on mentality has helped Italy, Spain, and Portugal tighten 3-4 bps to bunds, while rest of sovereigns trade in line to bunds. As for Treasuries, there quite simply were no flows worth discussing during the European session. European equities trade 2% to 4% better thus far today.

So we get JOLTS number (10 AM ET) and consumer credit (3 PM ET); don’t worry, no one will pay any attention whatsoever to them. However, we will all have to watch the $40BN in new 3y that Treasury will issue at 1 PM ET. And we will have to watch the issuance tape: there are already 8 European deals and what look like at least 6 US deals (3 financials by the way). The Fed will conduct its normal buyback operation beginning at 9:50 AM ET and ending at 1:10 PM ET; recall from Friday that the Fed has pulled a student body right change and capped buyback at $50BN now (the 3 PM drive-by from Friday, remember???), but we’ll just wait for student body left later….

If it hasn’t been made clear already, don’t look for any volume or liquidity this week. Market is taking a break. With Treasuries trading as tired as they do right now (since last Tuesday), the risk is for them to back up for the supply and then we’ll see if they can catch a bid at end of the week. The outsized (but here to stay) Treasury amounts to be auctioned this week only add to the pressure of dealers finding a level that clears for client interest. Vol should be under pressure early in the week and stay that way until Wednesday at least; by later Weds, think there might be an opportunistic chance to get some vol on the books. As for choice today in TYM, let’s call the range at 138-29 to 138-06, with overnight range at 139-01 to 138-13. Market should trade heavy with corporate supply and ahead of tomorrow’s 10y and Wednesday’s 30y. Support comes in at 138-17, 138-12+/11+ (says here that if you trade down to overnight low again, we will blow through this level), 138-06 objective, 138-02/00, 137-24+, 137-15. Trade through 138-12+ early enough in the day and we may be able to trade .75% in cash 10s today (comes in at roughly the 137-24+ support level), which might get us some activity and help with tomorrow’s 10y reopening! Resistance comes in at 138-24, the 138-29 objective, 138-31+/139-00, 139-09, 139-13+, 139-17, 139-22, 139-28, 140-02.

Have a good Monday,