one note from overnight…i.e., before Trump torpedoed risk sentiment (Tuesday)

Slightly better risk sentiment amid continued global pressure on bond markets during the Asian session gave way to Trump rhetoric during the London morning, as risk has headed to the hills after Trump offered during his NATO meeting that it may be better to wait “until after the election” to make a deal with China. Treasuries jumped 2.5 bps in the belly on the headline, while equities headed for cover. As of 8:30 AM ET, Treasuries were 4-5.25 bps lower in yield, led by the belly, while equity index futures are down roughly 1% across the board an hour before the cash open.

Before the noise this morning, Treasuries were under pressure in Asia, largely owing to soft Aussie supply and utterly awful JGB 10y issuance. Japanese 10y yield closed 3 bps higher at -.02, with market expecting a test of 0% imminently; you would think the sky was falling if you read the stuff out of Japan. Aussie yields were mauled worse on the face of it, jumping 10 bps while Kiwi rates were dragged 8.5 bps higher. Fear not, liquidity is worse in Asia right now than the worst day in the US; when this turns (for Australia and NZ), it will take no prisoners, especially when JPY yields don’t move (does anyone read what the BoJ has told us is going to happen??).

One important note from the Asian session (i.e. Before Trump!): while there was good Asian real money buying of 5s and 10s in cash Treasuries on the weakness, there was even more aggressive selling in Eurodollar futures from whites through greens (i.e., out to EDU22), all on screen with no blocks. Given the illiquidity in swaps these days, you can see the impact of the selling in swap spreads which are wider but on mediocre flow at best, and in spite of the usual Asian central bank buying of mortgages and related spread product.

Have heard, but not confident, that the seller was Asian bank, accounts that are axed to pay in swaps and sell belly outright. Not sure that works for me, could well be RV guys legging into wideners or Asian/European (but not Japanese!) RM accounts who have been slightly better axed to sell spread product into the bid from central banks. As per usual lately, Japanese lifers were buyers of WN contracts and 30s. Will update if I hear more on this subject….

Today’s calendar is barren to say the least: no data (unless you want to watch car sales closely), no scheduled appearances, and no supply on tap. So guess you can hang out waiting for Trump tweets and comments.

Oh what a tangled web we just can’t seem to escape these days…. Sell off 6 bps one day and rally 6 the next, all in the first two days of December. Liquidity? Well if you thought it’s been bad for the last six months, wait for the next 28 days. But I digress. So for choice today in TYH, let’s call the range at 129-25 to 129-10 (overnight low was 128-26). There is the high from Friday right here at 129-16+ that is also pivot resistance; take that out and you will take out the minor resistance at 129-17+ and scream up to 129-25 in the illiquid stampede. Below 129-10 negates a lot of the bull momentum from today and below 129-03 would be very interesting. Below 129-10, support comes in at 128-31, 128-26+, 128-23+, 128-17, 128-14, while resistance above 129-25 (Lord help you if you take that level out today) comes in at 129-26+, 130-00+/02, 130-10+, 130-17+. Enough for today….

Have a great Tuesday,