quiet session ahead of $145BN in Treasury supply…show up hungry! (Monday)

It has been a fairly quiet session thus far, marked by light volume and little real interest to make anything happen ahead of a busy Treasury supply calendar in the US amid a data-light session globally. Treasuries are .5 bps better in the long end but .75 worse on the rest of the curve, led by the belly ahead of the 3y supply. US equity index futures are firmer but well off their early Asian-session highs of the night.

Ahead of double-barreled supply in the US today, Treasuries unsurprisingly opened softer in Asia, and took a minor leg lower on continued strength in equities. Early flows saw RV account selling of the belly, hedge fund selling of 10s and macro account paying in USD 10y swaps. Asian accounts used the weakness to add some duration, with Asian real money buying 10s, Japanese real money adding 30s and Japanese credit desks receiving in USD 30y swaps. Activity was tame and volumes remained light to start the week. Locally, JGBs traded quietly around unchanged for the session as BOJ operation was in line and received well, focus in Japan currently on potential political scandal involving Finance Minister Taro Aso that broke last week resulting in small risk off bid for JGBs and Treasuries ahead of the European open. Equities in Asia rallied after Friday’s strong US performance, gains between 1% and 1.9% across the region in an otherwise quiet session.

Activity hasn’t picked up much in Europe. With a light economic and appearance calendar on the Continent, focus is on supply and ratings announcements at week end to start the week on this quiet Monday. Bunds are outperforming slightly on some selling of peripherals to buy core, notably in Italy (2.1 bps worse to bunds currently) and Spain (2.6 bps worse). Macro account bought bunds outright and against TY contracts, while RV account sold 3s outright and against 5s midsession after 5s had come under pressure from deal-related paying mid-morning in London. Just before New York arrived, European real money began buying long end in both Europe and US, with buxl and 30s being the primary recipient. Gilts have traded very quiet, largely following bunds and Treasuries throughout the session ahead of BoE bond buying operation at 9:45 AM ET.

Today’s US calendar is all about the supply. Only because of Treasury’s decision to give itself more time to settle auctions ahead of mid-month cutoffs (i.e., there is nothing nefarious afoot here), we will get the weekly slug of $45BN in 6m bills along with $28BN of new 3y notes at 11:30 AM ET; after digesting that, we get round II of $51BN in 3m bills and $21BN in reopened 10y notes at 1 PM ET. Yes, that’s $145BN of supply to digest in just 90 minutes. Anybody got some Tums? The only data today is the monthly budget statement for February to be released at 2 PM ET, while Fed is now in blackout period ahead of next Wednesday’s FOMC announcement.

Friday’s trade in Treasuries was quite simply a DUD! Failed breakout on the downside and then inability to get above the sell zone in Treasuries made for a long and frankly boring day after what would seem to have been a great day for a trade (huge beat on a headline number: either sell off hard or find out the market is short and turn hard– we did neither!). And today looks not much different: after opening softer and seemingly setting the stage to get a concession we have done nothing but crawl back since NY arrived. So here’s the thought: with Japanese fiscal year end ahead and no seeming need for duration at the moment, this off-cycle (i.e., monthly) note supply will be met with a tepid response at best. Look for an extension to the downside later this morning and then potential for a deeper concession ahead of the 30y supply tomorrow. So for choice today, call the range in TYM 120-03+ to 119-19+. Resistance comes in at 120-01, the aforementioned 120-03/03+, 120-08, 120-14/15, 120-20, 120-28, 120-01+; support comes in at 119-26+, the aforementioned 119-19+, 119-14, 119-06, 118-26.

Have a good start to your week,