Markets largely biding time overnight, slightly better to risk in Europe on ECB Board changes, slightly defensive in the US, with activity moderate at best throughout the evening. As of 8:15, Treasuries are .5 to 1.8 bps lower in yield from 3 PM ET, while US equity indices have bounced off overnight lows to trade marginally higher ahead of the cash open.

Not sure that news reports that majority of members in House now support impeachment investigation really matters, but there was aggressive buying of UST 7-10y sector of the curve by Japanese real money, Asian real money, and Asian bank types. Better volume in cash than swaps or futures, which is interesting given the new 7y supply due in 5 hours. Or, maybe it could be that getting 7s some 8 bps cheaper than 24 hours earlier inspired some early buying with an eye to a decent US month end extension (currently looks like .06 years), as that sounds a bit more plausible. There was better Japanese asset manager buying of 10s and 30s after Tokyo lunch, but the buying interest dried up into and through the European open.

There was some buying of MBS again, but this time by Japanese real money accounts, with central bank seen buying 5s shortly after the hand off to London. And why wouldn’t you want to add mortgages when they widened about 2 bps to swaps yesterday? Treasuries saw two-way flow during the European session: better hedge fund and macro selling of 5s, the latter also doing USD 5s30s flatteners in swap space, while RV accounts were seen selling expensive 7s (after the buying last night in Asia) on the fly against 5s and 10s.

In Europe, its been better to risk on, with the highlight being ECB member and uber-hawk, anti-QE Sabine Lautenschlaeger surprising the market by announcing here retirement from the Board two years earlier than planned. Schatz (2y) have seen very aggressive RV and macro account buying, with more hedge fund interest in EUR 2s10s steepeners on the swap curve. Keep one eye on expiration in Europe, as talk circulates that there is EUR 6.3BN of 1.100 strikes on EUR that expire today.

After numerous pieces yesterday highlighting that the same areas that locked up last week in GC (i.e., off the run Ts), the Fed wasted little time announcing an increase to today’s operations: $100BN in O/N repos (vs $75BN yesterday) and $$60BN in 14-day term repos (vs $30BN yesterday). That greatly helped the “risk on” mentality yesterday afternoon and green-lighted the back up in Treasury yields. MS out with a piece overnight that estimates $315BN in Fed POMO purchases of Treasury bond, notes, and bills over the next 6 months.

There ya go. Repo operation saw Fed take full allotment of $60BN in 14-day term ($72.8BN bid for), so now let’s see how GC trades in the next hour. As for the rest of day, bevy of data we really don’t care about (like 18th revision to Q2 GDP, although we will watch core PCE to see if it moves off the 1.7% Q/Q initial readings), and then Treasury’s supply of $45BN in 4w bills, $40BN of 8w bills, and $32BN of new 7y notes. Long list of Fed speakers again: Kaplan (9:30 AM ET), Bullard (10:00), Clarida and Daly (11:45), Kashkari (2 PM ET), finishing with Barkin (4:30 PM ET).

Let’s keep this simple: watch any back up to 1.81% in cash 10s to buy, lighten up/take profits around 1.46%, and don’t even think about setting shorts until at least 1.18%. How’s that???? As for today, let’s call the range at 130-16 to 130-00+ in TYZ9.

Enjoy your Thursday…
mjc