Equities are enjoying a day in the sun today, with the help of Chinese rulers mandating stock purchases, as global fixed income is being sold both to fund the equity purchases (i.e., Asian insurers and real money) and on reallocations by European money managers. Lest we skip, the Iowa Caucus is far from finalized. As of 8 AM ET, Treasuries are 5-5.5 bps higher in yield, led by the belly, while US equity index futures are 1.25-1.5% higher ahead of the cash open.

So Chinese stocks rallied between 1.5% and 2.5% across their various indices overnight, after Chinese Commerce Ministry called yesterday’s selloff “irrational.” To support their claim, they got a little help from their friends at the PBoC which injected further liquidity, totaling some $1.7TRN yuan over the last two days, AND their friends in the government, which “instructed” insurers to buy equities last night to the tune of 100BN yuan of purchases. So there you go, problem solved.

Locally in Asia, flows were better to sell in JGBs ahead of 10y issuance, and then picked up again in the afternoon as Asian real money accounts sold JGBs. Dovish statement by RBA (left rates unchanged as expected) saw Aussie 3s outperform on the curve, while Aussie 10s were flat.

Equities are higher across the board, US equity index futures up over 1% currently. Global Fixed Income off between 3 and 5 bps (well with the exception of Italy which is of course tighter, that is so entertaining).

Interesting flows in USD saw credit desks buying US 30s in Asia time, but better deal-related paying in USD 30y swaps since Tokyo afternoon. Asian insurers were sellers of US 10s and 7s, raising cash for their Chinese equity purchases naturally. Japanese real money was a better seller of MBS, both outright and against adding some duration via US 7s. European real money has been a better seller of US 10s since shortly after the European open.

Treasuries have a value gap below in TYH down to 130-29 and of course the trade gap from the initial flight bid back on Jan 24th down to 130-12. A bit of a ways off but anything is possible when you are simply pumping cash into the system. Vols came in offered first thing yesterday, with exchange getting waxed harder; saw some very consistent and deep bids show up as it seems people are more than willing to cover shorts on the bid side in gamma. Would think that we may get more of the same today, and actually like the idea of buying some synthetic call structures on the exchange via buying USH 159 puts (17 days to expiry, 20 bps out) for 13/64 against 13% delta at 162-13, which gets you in at 4.55 bpv. That is bid side this AM. That’s a good level to get some protection in place.

I think that will cover it for now. At least tomorrow we get ADP. Meantime, I am going to go back to being entertained by the folks in Iowa….. It’s not called “I Owe the World an Apology” for nothing.

Enjoy your Balloon Tuesday,
mjc