US Markets are trading mixed in as quiet a session as one would expect after the Thanksgiving holiday. Trump signing the HK Bill supporting the democratic protesters generated a small risk off bid for rest of globe and US Treasury futures Wednesday night, but time smoothed away the risk aversion. Market traded risk on last night as Treasury trading resumed, but since has returned to virtually unchanged. As of 8:15 AM ET, Treasuries were .25 to 1 bps higher in yield from Wednesday, while US equity index futures are small worse ahead of cash open.
There are a few important notes to be aware of today:
1) Today is First Notice Day for Treasury futures. March 2000 will trade front as of this morning; if your screens don’t reset automatically, you should do it this morning.
2) FI markets will close at 1:00 PM ET for options in CME/CBoT pits, 1:15 PM ET for electronic futures and options, and 2 PM ET for all cash.
3) Today is the last business day of the month, and for some firms end of the fiscal year. Overnight GC and repo have been tame, but the turning of the calendar will have everyone’s attention starting Monday as year-end funding takes center stage. Month end extensions show Treasuries extending a healthy (but average for a refunding month) .12 years, agencies extending .08 years, credit adding .09 years, and MBS extending .06 years. Pan-European aggregate extends .07 years, Pan-European Treasuries extend .07 years, Sterling aggregate extends .03 years, while Sterling Treasuries extend .01, Japanese aggregate adds .03 years and Japanese Treasury extends .02 years.
Okay, with all that out of the way, cash Treasuries resumed trading last night in Asia under minor pressure, with Treasuries marked lower after a small sell-off in bunds on Thursday and a bigger sell-off in JGBs on Wednesday, as the latter dropped 27 sen on the close (153.30 in JBZ9 to 153.03) as CTAs and black box types were stopped out by hedge fund sales through technical support in an illiquid market. The pressure just after the Japanese open was of course just what the central bank and Japanese real money types wanted as they gladly stepped in to lift better levels. Central banks were buyers of 2s and 3s, along with their usual allocation of spread product, specifically MBS, although more social in size owing to the thin market conditions. Asian banks were again better sellers of 5s and 7s to keep their hedges balanced into month end, while also being axed to pay in USD 5y swaps. After Tokyo lunch break, Asian central banks lifted more MBS but also sold some 7s against the spread product, while Japanese lifer lifted 30s and Japanese real money lifted WN (very interesting) and US classic contracts. Overall in Asia, volume was less than 50% of normal. In Asia, Hang Seng remained under pressure for a third day due to the political instability in the region. The pressure on JGBs from Thursday continued overnight with JGB 10s jumping another bp in yield, this time the driver being dealers building in concessions ahead of next week’s 10- and 30y sales by the MoF. Aussie 10s put in a sloppy, lackluster day, with yields there up another 3 bps as well, while Kiwi yields were 1.5 bps higher than Thursday’s marks. Asian equities traded lower across the board, led by the 2% drop in the Hang Seng, with rest of the Asian bourses .75- 1% lower.
The European session has remained very quiet. Better EU HICP pressured bunds and Treasuries mid-morning, but long end of European curve has seen very good European real money buying of buxl and a bit less enthusiasm for bunds. Treasuries have seen some Asian buying of 10s but European real money has been much better seller of US 10s and TYH contracts since an in-line German employment number three hours ago. Volume and activity drew to a halt just as NY was arriving and has yet to pick up. European equities are mixed, focus in Europe being on politics in Italy (boys fighting again) and UK (boys fighting again), with France and Spain outperforming on the Italian rebalancing (BTPs are 1 bps higher in yield while OATs and SPGs are 1+ bps lower in yield).
There is no data on the docket today, and the speaker slate is clear as well. So it’s just about month end and watching football games.Again, a reminder to watch the March 2020 contracts in Treasuries beginning today. With that in mind, for choice let’s call the range in TYH0 at 129-17+ to 129-07+. Support below 129-07+ comes in at 129-05+, 128-30, 128-27+, 128-17, 128-14, 128-05+; resistance comes in at 129-22+, 129-26+, 130-00+, 130-09+/10, 130-17+. If anything, risk is to Treasury market coming under pressure mid-morning as shorts can take control in the quiet market heading into December but that will be short lived as everyone will be back buying on Monday. Enough for now, time to figure out what football game to watch.
Have a good Friday and a better weekend,
mjc