quiet night turns to better risk setiment on the Moderna vaccine news (Monday)

Markets were trading mixed in a fairly tame, small risk on session until the following headlines printed from Moderna:

At that point, eminis jumped a quick 30 handles, while long end of USD rate curve saw yields jump 4-5 bps higher. Equities have backed off their highs since then, but rates remained locked on their high yields. As of 8:30 AM ET, after the soft Empire State release (6.3 vs expected 13.5 and last of 10.5) that the market has largely ignored, Treasuries are flat to 3 bps higher in yield, with curve bear steepening led by 20y sector ahead of Wednesday’s auction, while US equity index futures are roughly 1% better except for the NASDAQ that trades small lower ahead of the cash open.

The Asian session saw early Japanese real money selling of 5s and 7s, with small deal related paying in USD 10y swaps. There was some minor bank receiving in USD 10y swaps after Tokyo lunch but small selling of US long end on Saudi Aramco announcement of USD issuance this week in 3s, 5s, 10s, 30s, and 50s as we handed off to Europe. Treasuries were better bid early in European session on some hedge fund RX/TY unwinds and on buying of US Classic futures by London macro account, as Treasuries maintained a bull flattening session. The Moderna headlines flipped everything and saw Treasury futures volume on the session double in under 20 minutes. We heard of good selling by hedge funds out of London in 30s and US classic, RV selling of 20s ahead of the supply later this week, stops run through 138-00+ in TY and 125-14 in FV (Friday’s lows). Since the 4 bps break, we have quieted down with small interest in TU/TY steepeners and TU/US steepeners that have helped keep front end and belly anchored while pressuring long end.

Locally, the Asian session saw better buying of JGB long end, which helped support Treasuries, while Aussie 10s were bid ahead of RBA buying ops in 5-7y sector, but long end was pressured ahead of AOFM 5/41 tap tonight. New Zealand saw better domestic real money selling of Kiwi 10s and paying in NZD 15y sector. Asian equities were better bid after the US bounce Friday, rallying between 1% (China) and 2% (NIKKEI).

European session found support for rate markets from early PEPP flows, with Spanish 10s and Portugal 5s being bought early. Interesting, those two have underperformed since, with hedge funds stepping in to sell both against bunds and bobls. European markets are waiting on Lagarde’s appearance at the World Economic Forum shortly for more insight into CB’s thinking on the continued uptick in COVID cases in Europe. Gilts underperformed Treasuries and bunds throughout the morning, but have held up better than Treasuries after the Moderna announcement. European equities were small higher until being dragged higher by the Moderna headlines.

Today in the US, we get Empire Manufacturing at 8:30 AM ET, while Daly (1:45 PM ET) and Clarida (2 PM ET) will speak on the economic outlook later today. We get a(nother) record $27BN of new 20y on Wednesday, with 10y TIPS on Thursday, but that’s about it except for bill issuance this week.

Risk on day today and really no reason to fight it for now. Something doesn’t line up right, but it can’t be fought right at this moment. For choice today in TYZ, call the range at 138-02+ to 137-19, after an overnight range of 138-08 to 137-27. Looks like we should be able to extend this downside as long as we stay below 138-02+/03. Support comes in at 137-23, the 137-19 objective, 137-10, 137-01; resistance comes in at 138-02+/04 zone, 138-08+, 138-14+.

Have a good start to your week,