Risk markets are largely biding time this morning, which has been the theme most of this week. Bullard comments early in the Asian session highlighted his earlier-stated contention that December’s hike may have “slightly overdone it,” helping underpin Treasuries early before they came off on better Asian real money selling in 10s and 30s after Tokyo lunch. Concession-building ahead of the bund supply saw complex weigh on Treasuries and gilts, with the latter breaking free given the heightened instability in the UK for Teresa May. Finally, talk that Trump could turn up pressure on Beijing by blacklisting Chinese Surveillance Tech firms sent risk scurrying for cover just before NY arrived. Back to reality, as of 8 AM ET, Treasuries are 1.5 to 2.5 bps lower in yield, on their highs of the day given some early levered buying in 10y and FVM futures, while US equity indices are trading .5% to .75% lower ahead of the cash open.

Given how we are more inclined to watch the tapes today, maybe a good time to touch base on the quarterly calendar rolls that are running a bit behind schedule, save the TU roll. Here is a quick “Pace of the Roll” update in Treasuries:

TU: 26% rolled
FV: 16% rolled
TY: 8% rolled
UXY: 6% rolled
US: 8% rolled
WN: 14% rolled

Only the TU is on pace (actually, slightly ahead) of average roll speed. That is being driven by the large open interest position in TUM9 (2.99MM open interest as of COB yesterday) and lack of supply in what was the CTD (1.25% 3/21s) which has the distinct possibility of causing a squeeze starting next Friday (first notice day). If you remember, the long basis trade was quite appetizing several weeks ago, and everyone piled into it. Now you have negative carry working on your position if you are short the basis (2.378% repo last night). The demand for the 1.25s has now forced that issue out of the CTD space for now, as the 2.375% of 3/15/21 (old 3s) becomes the CTD. This is crushing the short basis position and is the reason we have seen 9% of OI come off the TU complex in the last two sessions (15% in TUM9 alone), as long TUM are choosing to bail early and not roll to avoid risk of seeing further squeeze in the deliverable. This will remain quite fluid right through the beginning of the delivery process next week.

As for the rest of the curve being “behind the pace,” it’s simply that commercial account (i.e., money managers/asset managers) positioning is largely flat to long across the curve. With managers needing to sell, levered money shorts are biding their time for now, with a quirk in the calendar actually slowing the need to get wrapped up as you have virtually a full week to trade after the Memorial Day holiday. Have not seen anyone who has argued for spreads to richen ahead of First Notice Day. We’ll keep everyone up over the next week.

Today’s calendar is devoid of any important releases, with only the FOMC minutes from the May 1st meeting at 2 PM ET; don’t really expect any surprises from this one given that every member has been out talking about the meeting already. Williams speaks at 10 AM ET and Bostic opens the Dallas Fed conference at 10:10 AM. There is certainly a lot to watch from 10 Downing Street to Beijing to Washington and even worth making a stop in Rome, but risk markets are generally sanguine at the moment. There is more activity in commodities than anything else right now, with Citi spending the morning promoting their newest piece (theme: don’t sleep on inflation given what is happening in commodities); I think it’s really a central bank plant (just kidding, but only slightly). If you wish to have an enthralling conversation of what is transpiring, our colleague Mike Clifford is more than willing to look a reams of charts and data with you. It’s quite interesting but after over a decade of false starts on inflation, it’s getting a bit hard for a jaded old man like me to get very excited.

So for choice today in TYM, let’s call the range at 124-17 to 124-05+, although we are smack in the middle of nowheres-ville and it really doesn’t matter right in here. Think it stays quiet. Wake me up if we take out 124-27 or 123-22+ in TYM…..

Have a good hump day,
mjc