risk on to start the week, but fixed income holding in for now…. (Monday)

It was a tame weekend and has thus been a very quiet start to the week, although definitely a risk on tone to the markets, although global fixed income holds up fairly well for now. Optimism on a vaccine since NY has arrived (Moderna says their vaccine “shows promise”) helping as well. Volumes remain anemic, more so today than recently. Treasuries are 1-5.5 bps higher in yield, led by the long end, with the belly holding up best for now, while US equity index futures are 2.5% to 3% higher ahead of the cash open.

Hard to put a theme on US fixed income volumes overnight. There was slightly better interest to buy US belly in Asia, with central bank buying in 5s and 7s underpinning that sector. The normal Asian bank hedging was much lighter, with only small interest to pay in USD 5y swaps after Tokyo lunch. The early jump in US equity index futures saw hedge fund selling of US 30s, while new highs in index futures after the European open saw another bout of selling in US 10s (RV account) and US 30s (hedge fund again). Swaps saw small receiving interest out of Asia in USD 5y sector, better interest to pay in USD 30y swaps, although RV accounts have preferred selling/paying 10y point, with Europe seeing RV interest in USD 10s30s flattener on the swap curve. Central bank buying of mortgages picked up a bit in early European trade as well, while Treasuries followed bunds and gilts around in the last 3 hours with barely any theme other than that.

Asian markets were very indifferent on the rate side as well, with JGBs closing down .5 bps in yield, Aussie 10s closing up .2 bps and New Zealand 10s closing up .3 bps– so basically all unchanged. Aussie rates were sluggish early ahead of the reopened 05/28 paper while Japan flat-lined ahead of new 5y supply; both supply events went fine, but not better than that, with JGBs bouncing and Aussie rates rallying to just short of Friday’s closing levels. As for equities in Asia, most bourses gained between .1 and .6%, although the NIFTY gave back some of its impressive gains from last week, closing down 3.4% on the day.

Bunds opened under pressure ahead of supply and on risk sentiment, while gilts were underpinned by B0E Haldane comments this weekend discussed his interest in exploring negative rates. Gilts have steepened throughout the session as market prices in possibility of negative rates, front end/OIS very well bid while long end is better but lagging, with tomorrow’s 40y issuance also weighing. There has actually been good real money buying in 10y sector, but the front end is on fire with short-covering driving the action after the surprisingly dovish comments from Haldane.

Bunds opened under pressure early on combination of risk on and supply out of Belgium. There was RV selling of bunds to buy gilts, and even better selling of euribor against short sterling by hedge fund. Fitch revision to France’s outlook (to negative from neutral) also weighed on OATs, and bunds in knock on fashion. ECB member Lane’s comments offering more support (i.e., adjust PEPP amounts higher) brought belly and front end of bund curve screaming back, although long-dated, buxl, continues to underperform markedly, as it’s a steepening world out there. Italy and Greece lead peripherals tighter on Lane’s promise of ECB support. One more leg down for 10-30y sector of bund curve into the Belgium pricing, and then better bid after as Belgium OLO 10y and 11y go fine, although the OLO 30y was sluggish, which isn’t helping buxl. European equities are trading up 2-3% on their highs of the session.

Only event on today’s calendar will is NAHB at 10 AM ET, with Bostic speaking at 2 PM ET. The rest of this week will (HOPEFULLY!) get more interesting as we will have Powell and Mnuchin testifying before Congress tomorrow, the new 20y at 1 PM ET on Wednesday, and the Treasury calendar roll in high gear throughout the week as well. So here’s hoping….

The Powell interview was not surprising to the market, maybe the “30%” contraction in GDP caught the public, but Powell stayed away from negative rates and seemingly made the case that the Fed is confident in its management and will continue to work with Congress to increase fiscal stimulus. Boy, that’s swell. The Haldane story will have ripples here, but for now Powell and Co are out in front of the negative rates story; it will likely die down for a few weeks before it gets hot again in June after we reopen more of the economy and the ignition isn’t quite there yet.

All right, don’t think it will be a crazy day, but risk is clearly in control and looks to stay that way for a test of last week’s upper bound in equities. For that reason, look for fixed income to trade sluggish to heavy here. For choice today in TYM, call the range at 139-09+ to 138-22, with a clearly bearish tilt for today and at least early tomorrow. Support below comes in at 138-29+, the objective at 138-22, 138-14+, 138-11, 138-02, and 137-28; resistance comes in at 139-09+ objective, 139-15+, 139-19, 139-27, 140-02, 140-18.

All right, have a good Monday and stay awake…