quiet market calms nerves….or should we say quiet before the storm? (Thursday)

Market is doing its best to avoid being shut down for lack of use today. This has been a horribly boring session thus far… We did not trade 200K TY futures until after 7:30 AM ET! As of 8 AM ET, Treasuries are slightly lower, led by the belly, with yields up between 1.25 (30s) and 2 bps (5s) at 7:30 while equity futures are barely higher ahead of the cash open.

There was small buying of 5s and TY contracts by Asian real money accounts off the early lows in Asia, after Treasuries had ticked down on light volume during the Asia morning after the news of the Brexit extension broke. Interesting that US risk responded, albeit very marginally, to the news while GBP didn’t move. Sign of how quiet it was. Flows were nondescript: the usual Japanese real money buying spread product, but very small interest today with levels marked higher as everyone knows which way the flows lean. Central banks were small buyers of 2s again, and sold some 5s against it. Asian bank received in 5s after Tokyo lunch and then everyone took the rest of the session off. Locally, JGBs added to the week’s gains in an otherwise nondescript session, while Aussie rates retraced some of Wednesday’s minor sell off. Asian stocks were largely flat except for some pressure on Chinese bourses.

London session has been a complete snooze, especially with German and French CPI unrevised. Italian auctions were a mixed bag, and have added to a little pressure on global rates post pricing. But there has been virtually no flow worth discussing. The biggest volume in exchange options has been 7K contracts traded in Eurodollar midcurves.

PPI and $16BN 30y reopening today. Claims and a couple Fed speakers: Clarida at 9:30 AM ET; Williams at 9:35; Bullard at 9:40; Kashkari on Twitter Q&A at 2 PM ET; and, Bowman at 4 PM ET. Probably see more attention paid to the Masters to be honest.

Very interesting to note the piece that just crossed my desk: Implied vol in bunds is getting crushed this morning. That seems about right for the market. As soon as the market pauses in the march to lower rates, vol comes off- and it comes off hard. Be careful: as quiet as it is, 70% of the time after a 30y auction we rally through Friday, and in 30% of those cases the objective is 10 bps through the 30y. That all presupposes a decent auction. But market still trades short, both anecdotally and empirically, so risk is a resumption of the rally and a rinse-and-repeat of the other week. But enough on the soap box…. For choice today in TYM, call the range at 124-02 to 123-19+. Market should try to test lows ahead of supply, especially since we haven’t seen great set up effort yet by RV types. Support below 123-19+ comes in at 123-18, 123-14+, 123-11+, 123-08, 122-31, 122-22; resistance comes in at 123-31, the aforementioned 124-02, 124-04+/05+, 124-12, 124-17. This is a great gift to cover short gamma positions this morning. Don’t be that pig that gets slaughtered….

Have a great Thursday,