short Friday update….just leave it at steepeners for now

Treasuries are back on their theme from yesterday morning (even if it didn’t really stick by day’s end yesterday), with steepeners being the theme of the day. As of 8 AM, Treasuries are flat to 2 bps lower in yield, led by the front end that has found good support throughout the session. US equity futures are mixed, largely unchanged ahead of the cash open.

With Japanese Golden Week set to start, flows overnight were muted with the exception of the block steepeners that went through in Treasury futures, three trades during the Asian session and one more shortly after the European hand off. For reference:
*12,000 TUM9 trade 106-13 and 2500 USM trade 147-09 at 8:18 PM ET ($460K DV01 of the 2s30s steepener);
*12,000 TUM9 trade 106-13 and 2500 USM9 trade 147-07 at 11:06 PM ET ($460K more in 2s30s);
*12,000 TUM9 trade 106-13 and 2500 USM9 trae 147-02 at 11:43 PM ET (($460K more of 2s30s)
*12,000 TUM9 trade 106-13.75 and 2500 USM9 trade 147-02 at 2:18 AM ET ($460K more).

That makes $1.84MM of DV01 in 2s30s steepeners last night after $915K of the same last evening. 2s30s was 2.5 bps steeper than 3 PM yesterday after the blocks. Other than those flows, there is very little interest in the market, although S&P review of Italy is getting some notice (expected no cut in rating, but no one willing to take that bet, very weird this time).

The first look at US GDP for Q1 is getting all the attention today at 8:30 AM ET; we will also get final U of Michigan sentiment data at 10 AM. With the Fed in blackout ahead of Wednesday’s meeting, the rest of the day should be quiet from a data/Fedspeak perspective.

Open interest in Treasury futures for yesterday showed a drop in WN (Ultras), US classics, and Ultra 10y notes, with an increase in TY, FV, and especially TU (+.47%, 17K contracts). So the belief that accounts were moving “in on the curve” looks supported by the emperical data. There have been a number of explanations for the move on the curve, both influencing the greenback or being influenced by the currency, but the reality is the steepener is the pain trade for now. Intuitively, guess that makes even more sense when one considers the short vol position we know still exists (harken back to the end of March). All right, it’s Friday, time to get off the soap box and figure out how I am going to play golf in the snow this weekend…. For choice today in TYM, let’s call the range at 123-25+ to 123-10+, with the latter being the overnight low. If we get a strong enough print to take out that low, we will test last Friday’s settlement at 123-04+. Below there, support comes in at 123-03+, 122-30+, 122-28+, and 122-23. Take out 123-25+, and watch out, as we will be back in power squeeze time, with 123-28+/29 being the final line in the sand before 124-05+ and a target at 2.3% clearly in the sights of the market.

Hope you have a great weekend and can avoid shoveling snow!