quite the yawner so far today….risk better bid as per usual (Tuesday)

It has been a very quiet night, with little to highlight other than the steady risk on mentality that underpins by day’s end and the related bear steepening globally. Volume was anemic overnight, flow similar. At 8:30 AM ET, Treasuries are bear steepening early in the US with yields up .1 bps in 2y and 2.5 bps in 30y. US equity index futures are trading marginally firmer but up against their overnight highs ahead of the cash open.

Treasuries saw a small bout of levered short-covering in TY and US classic contracts on the Asian open as the events in Washington sent a small shudder through the markets. Treasuries held better flattening bid until all of Asia was in, after which time the long end gave back its gains and Treasuries traded sideways through the Asian session. Japanese real money lifted cash 10s in small size, while Asian real money was a better seller of 2s to buy 5s, with Asian bank paying in USD 5y swaps. More Asian real money selling came through in 10s shortly before the European open that took intermediates and long end to early lows, while continued absence of central bank activity removed normal support for Treasuries.

Treasuries bounced into the European open, but then followed Europe lower in early concession build ahead of supply in UK, Germany, and Austria. Treasuries saw almost exclusively sell flows since shortly after Europe arrived until the NY arrival, again most of them very small. European real money sold 30s, macro account added 5s30s steepeners as did several copy cat levered accounts, hedge funds sold 5s and 10s, RV accounts sold 10s to buy gilts out of auction, while UK fund sold US 30s against buxl, a trade that has worked very well today. Since NY arrived, there was some early portfolio buying in 7s, but after a quick bounce to halve the day’s losses, Treasuries are now making new lows on deal-related selling in 10s and 30s along with paying in USD 5y swaps.

The Asian session largely ignored the early risk concerns of the US and basically picked up where it left off yesterday, adding to risk, especially focused on reports that China continues to buy US soybeans and other US farm products. RBA left rates unchanged as expected, maintains 3y target yield at 0.25%. Aussie 10s got hit into supply, but the AOFB 10/29 tap went very well, with an extremely small tail and very solid bidding. Likewise, JGB 10y auction sported a very small tail as well, although without quite the aggressive bidding it had enjoyed in the last few months. JGB 10y yield closed flat, as the curve steepened around the 10y point, Aussie rates rallied into the close to see 10y yields only inch up .6 bps, while Kiwi yields continue to struggle under unwinds/profit taking as the New Zealand 10s closed 2.75 bps higher. Asian stocks added to gains, with NIKKEI up 1.2%, China up roughly .5%, and rest of Asia up between .5% and 1.5%.

Europe traded sideways on the open, but rates came under pressure ahead of sovereign supply; after decent to solid issuance, risk seemed to gain a stronger hand and pressured core rates further. UK 6y gilt auction found very good demand that produced an extremely small tail, while the UK 10y gilt saw a lower cover, an average tail and decent overbidding. German 10y Linker also had a small tail and decent overbidding. Austrian 3y and 10y auctions both came with small tails but softer bids. There was no real news or data to move Europe, so once supply passed it became about rate levels and curves. BTPs have bounced nicely since getting whacked late yesterday; it seems that regardless of spoken words, the EU will not set the boot afloat. Flows in Europe have been light and fairly balanced on both sides of the ledger. Rates are generally .5 (bunds) to 4.5 bps (Italy) lower with the risk on supporting peripherals.

Today’s calendar brings us only Vehicle sales, tomorrow picking up a little and then the NFP report being everyone’s highlight for the week on Friday (not sure that matters honestly). Fed is in blackout, there is no coupon supply this week in US. It’s just about corporate issuance. Oh yeah, on that front, yesterday we got some 11 deals for $19.75BN in new issuance (helps when $10BN comes from AMZN), with the early call for this week having been $33.5BN in supply; since we are already 60% of the way there after one day, thinking that number needs to be revised, and yes we do have a decent calendar growing today.

This is so boring. All you need to meditate on is that vol is quickly approaching its lows for the year, and NOBODY even cares. There was almost zero volume in exchange options overnight, but since NY arrived we have already seen wing sellers in TYN strangles (137+/139+ at 28/64) and Blue Sep (EDU3, trading at 99.57 here) 99.375 puts for 5.0 bps. So if you thought vol was cheap two hours ago….you get the idea. For choice today in TYU, let’s call the range at 139-03 to 138-21, with ZERO confidence in anything to do with this market right now. Overnight range has been 139-03+ to 138-26+. Support comes in at 138-25, the aforementioned 138-21, 138-18+, 138-14, 138-09+, 138-01+; resistance comes in at 138-31+, the aforementioned 139-03, 139-06+/07. 139-09, 139-13+, 139-16, 139-25.

Have a good and safe boring day,