The Chinese holidays, “Mid Autumn Fest” today, and the Yom Kippur holiday have both helped to keep volume and activity subdued this Monday morning, not that we have similar excuses for the lack of volume over the last quarter, but I digress. Markets trade slightly better to risk ahead of the NY open. As of 8:30 AM ET, Treasuries are flat to 1.5 bps higher in yield, led by the 20y sector as curve bear steepens, while US equity index futures trade roughly 1.5% higher ahead of the cash open.
Volume in Treasuries, swaps and futures has been paltry thus far today to say the least. There was better Asian bank selling of 5y and 10y in Treasuries around the Tokyo lunch, some small buying of US 30s seen by Japanese money manger. The only swaps that we heard about were some small RV adding of steepeners in USD 20s30s on the swap curve. Into the London open, better Asian real money buying of US 20s helped steady some late Asia session pressure, while central bank also was seen lifting normal 30s and mortgage product but not in any great size. The story that Pelosi claims she will get a deal with Trump on a $2.2TRN spending package (even though he supposedly wants to stop at $1.5TRN) got a lot of play through the London open and helped further bid risk. Treasuries seemed to follow bunds and gilts lower more than getting sold, as only flows we heard were light European bank selling of 10s and some RV selling of 20s to buy 30s in Treasuries, opposite the trade we saw in swaps during the Asian session. There was better buying of US 10s against gilts, which was interesting in an otherwise boring session, while we also saw deal-related selling of US 5s and bobls, again in smaller size. There was a block seller of 12K short Oct (0EV1) 97/98 call ratios with 66% delta, 7711 at 3:54 AM ET and 5000 at 6:10 AM ET). Other than that, market has barely registered a pulse since NY arrived.
Asian session saw Aussie 10s open on their highs of last week, only to give up most of the day’s gains on bank strategists questioning if the market had priced in too aggressive an easing for the RBA in November. Meanwhile, there was better domestic bank and real money selling of JGB 20s and 30s that put steepening pressure on Japanese rates. JGBs closed the session .5 bps higher in yield for 10s, but almost 2 bps higher in 20s and 30s, while Aussie 10s eventually gave up a nice 2.5 bps rally to trade but .5 bps lower in yield late. KIWI yields basically matched Aussies, with rates down about 1 bps in 10y space. Asian equities saw China lead early before some profit-taking set in, leaving China largely unchanged while rest of Asia held early gains, again all on very light volumes.
Europe has seen an even better move to risk on, with bigger focus on stimulus talks in the US and Federal judge’s ruling that blocks Trump’s TikTok ban for now. Some hope that UK/EU trade talks this week bear real fruit have also helped bid risk in UK. BOE Tenreyro’s defense of negative rates policy over the weekend helped bid both short sterling and euribor in early European trading but risk on dented those early front end bids. Best flows in Europe seemed to be deal-related selling of bobls and some RV selling in long end of gilt and buxls, while peripherals have seen better outright buying of long end for month end extensions. European equities are up between 1.5% (FTSE) and 3% (DAX) ahead of the US open.
Today’s calendar is bare, with only Dallas Fed at 10:30 AM ET and an appearance by Mester at 2 PM ET (economic equality webinar). Activity heats up as we move along this week though, with the culmination of the week being Friday’s NFP report for September. Since we have been in quarantine for a week, might be a good time to make sure you know that Treasuries extend .09 years this month (better than average, but not the .16 years mistakenly reported early last week!!) as MBS extend .07 years and gilts extend .20 years, while EGBs extend .13 years and gilts extend an outsized .20 years. Worth watching the rest of this week.
For choice today, and remember that walking away is not an option no matter how bored you get, let’s call the range today in TYZ at 139-22 to 139-14, that heavily is being skewed by the range last week (139-23+ to 139-12, that was put in on Monday and never violated the rest of the boring week!). Support for TYZ comes in at 139-16, the aforementioned 139-14 objective, 139-10+, 139-06/06+, 138-28; resistance comes in at 139-22 objective, 139-26+, 140-00+, 140-10. Good luck out there today. Don’t have an opinion right now, but will be a buyer by later tomorrow for month end and off some technicals that are turning here. Would be good if we back up a few bps to more attractive outright levels before that though.
Have a great Monday,
mjc