return to Summer doldrums, at least for a day….. (Wednesday)

Global markets are trading quietly, taking some time to digest the events of the this week and waiting to see who flinches first. In brief, it was a boring night. As of 8 AM ET, Treasuries are .5 to 1 bps worse with long end underperforming slightly while US equity futures trade marginally firmer ahead of the cash open.

Activity in Asia was okay to start but tapered off quickly. There was more Asian bank paying in USD 5y and 10y swaps, with Asian real money again receiving in the 30y sector of the dollar swap curve, choosing today to stay away from the belly. Small buying by US real money account in 5y sector as well as some dealer buying in 7s helped take Treasuries to their overnight highs before they settled back toward their 3 PM ET marks into the European open. After Tokyo lunch, Japanese real money was better seller in 5s and 7s. Locally, Japan was fairly quiet with yields mixed across the curve there, pressured higher in the long end but finding support in the front end on no change in size of BoJ purchases. Aussie yields continued their march higher, with front end leading the way again as funding rates remain elevated. Asian stocks and US equity futures opened mixed but steadied as the session wore on, with Asian equities uniformly clawing back some of the recent losses, closing between .5% and 1.5% higher on the session.

By the time Europe opened, risk had taken a clearly better view, with European equities opening firmer and European supply taking center stage. A small beat for German PPI also added pressure on fixed income. A reopening of 2044 buxl and a new UK 10y linker both brought out dealer selling, with buxl and bunds being sold for the German supply while the UK linker represented about 9K gilt futures that dealers hedged. RV account bought 10y BTPs against bunds, along with OATs outright; later in the European morning macro account sold rich SPGB 5y sector against the wings in Spain. Treasuries moved lower in sympathy with with European core markets and then spent the next 6 hours trading sideways. There was some small deal-related receiving in US 10y swaps, but better interest in 5s30s steepeners on the Treasury curve by a UK macro account. Shortly after NY walked through the door, the long end of the curve came under pressure, some speculating it might be related to impending Walmart deal to finance its purchase of India Flipkart.

Yesterday, we managed to avoid testing key resistance levels on the Treasury curve by roughly 1-2 bps, settling back into the recent range by the end of the day but never threatening to make it a “bad” day. Yesterday was a good show of the playing field, and make no mistake it isn’t pretty. If everything holds true and we follow the recent pattern correctly, we should be good to back up toward 3% in cash 10s, 3.15% in cash 30s as that steepening will best pressure the weak longs that would only add more fuel to fire if those long positions were exited. For today in TYU, call the range 119-29+ to 119-19+. Get above 119-29+ and you have to trade 120-01, and things get a bit more heated ahead of key 120-08 level. Take out 119-19+, and you can take a run at 119-15 ahead of 119-06. Like the idea of selling a synthetic put here in US space, as long end gamma should come under most pressure in any back up.

Today’s calendar includes current account deficit for Q1 at 8:30 AM ET, along with May Existing Home sales at 10 AM. Keep an eye on the tape as Draghi, Powell, Kuroda, and Lowe all speak in Sintra, starting around 9:30 AM ET.

Have a great hump day,