It has been an extremely lethargic and light volume trade to kick off the final day of trading this week. Markets are biding their time ahead of the US open. As of 8:20 AM ET, Treasuries were either side of unchanged in a small bull flattener for the long end; meanwhile, US equity indices are barely trading, marking time slightly changed ahead of the US cash open.
Theme in Asia was the usual adding of spread product by central banks and Japanese real money, with central bank buying mortgages, and the Japanese real money guys buying mortgages but also deploying flatteners on the US Treasury curve in 5s30s. There was also receiving from 5s out to 10s in USD swaps from Asian banks. There were two big block conditionals during Asia, following the daily theme this week. This time it was a block buyer of 20K FVZ 119.5/120.25 call ratio, paying 5.5/64s and a seller of 30K FVZ 118/118.75/119.25 put fly at 2/64. Treasuries were 1-1.5 bps better in a bull flattening ahead of the European open, while JGBs rallied 1.5 bps in 10s, with Kiwi rates the star amidst a 5 bps rally on good domestic real money buying after talk is that large US macro money manager on the west coast has been aggressively adding “Kangaroo” debt and receiving in AUD and NZD swaps for the last week and a half. Asian stocks traded little changed either side of flat, with Japanese and Chinese indices largely better while rest of Asian bourses were generally flat to slightly lower.
Of course, like the the last three days, the bid disappeared, today on the back of (slight) beat for German IFO expectations, even though the headline number dipped. Whatever, no volume, nobody really seems to care right now. Talk of a “French holdout” has underpinned fixed income in Europe, the UK and US, but better macro selling of bunds after the IFO number, interest to pay in EUR 20y and 30y swaps, UK bank paying in USD front end swaps, but volumes have been basically awful. European stocks are drifting lower as the day progresses.
Today in the US, we get Michigan at 10 AM ET, and then we’ll watch Treasury options expiration at the Board and try not to fall asleep. Oh yeah, there will be the usual tape bombs from our friends in Europe, messing with the Brexit process in the UK again. As for options expiration, the only items worth keeping in the back on one’s mind would be the 75K in open interest for the 129.5 strike in TY; take out 129-24 and you might have a chance, as that is the high open interest strike today (17K 129.5 calls). The high open interest strike remains the 130 strike (45K calls, 68K puts) that will act as a draw later today if we don’t get moving. There is almost no open interest in the US expiring calls and the only strike of note in FV is the 118.5, which is too far away from here. So for choice today in TYZ, call the range 130-03+ to 129-24 (yeah, pretty tight range I know). Support below comes in at 129-27, the aforementioned 129-24, 129-20+, 129-17+/16, 129-09+; resistance comes in at 130-02/03+, 130-08+, 130-13, 130-20, 130-22.
Stay awake today just in case and have a great weekend,
mjc