Treasuries have clawed back roughly half of Friday’s post-NFP losses since market reopened after the Labor Day Holiday. The unofficial end to summer brings hope that maybe we can get some real trading done, but let’s not get too far ahead of ourselves. Markets trade slightly better to risk off since Trump threats in a Labor Day rant about “decoupling” China, with talk of US action against imported cotton products from there as well. As of 8:30 AM ET, Treasuries are 1-6 bps lower in yield with the long end impressively leading the way, while US equity index futures are struggling, down between 1% to 3% ahead of the cash open.
Treasuries opened roughly 1 bps better bid in Asia on Monday night, largely because futures did trade Sunday night and until 1 PM ET Monday (so wrong, but that’s a different rant altogether) and basically held the better level the entire time. Small Japanese real money buying of 7s and cash 20s that came after the Tokyo lunch last evening helped keep Treasuries better bid. There was Asian bank selling of 10s both Sunday (small) and Monday (normal sizes), while RV/hedge fund was doing USD 5s10s swap steepeners ahead of large corporate supply and monthly long-end auctions this week. USD caught a bid into the European open, weighing on Treasuries slightly, while there was more aggressive selling of EDZ0 and EDH1 right on the London open, which was attributed to a CS piece looking for OIS wideners due to FX hedging into year end. 25K+ EDZ0 were sold at 99.70 to 99.69+, while 15K EDH1 were hit down at 99.79, all on the London open. Very good buying of gilts dragged rest of globe higher, with real money lifting 10y gilts and then eventually US 5s and 7s, while RV account sold US 10s to buy more 10y gilts and sold the wings on UST 10s20s30s fly ahead of the supply this week. Better buying of USD spread product was a backdrop for most of the European session, with central bank lifting mortgages mid-morning and Japanese real money lifting more product just before NY arrived. With the arrival of NY, there was a short-covering bid for hedge funds in the long end, with 30y leading the move in the last 90 minutes.
The Asian session was a quiet one for Australia and New Zealand both Monday and Tuesday, but Japan has been busy with supply both days. Today’s 5y JGB issuance was again a tough slog, but got done and market moved on. Asian equities trade better both sessions, with gains between .75% and 2% over the course of the last two days. JGB yields were .5 bps lower since Friday, while Aussie yields were 1 bps higher after backing up Sunday night, and New Zealand rates are flat to their Friday marks; all three markets reversed Monday weakness last night.
Europe has been a bid affair in fixed income for two days, between growth issues and UK PM Johnson’s new ideas he is floating on BREXIT (oh boy!). Gilts opened the book on a new 15y syndication, and talk was the book was oversubscribed at least 5x within an hour. The flattening bid has been very solid, with 3076 G Z0 (Dec gilts) lifted for 136.24 at 6:54 AM ET (11:54 AM BST), as GBP 365K of duration was lifted in the 10y sector. Bunds were better bid on EUR pressure and softer EZ equities with curve flattening there as well. Italy is leading peripherals tighter as Italy opened books on a 15y syndication and likewise found very aggressive demand early. European equities are down between .75% (FTSE) and 2.3% (Spain), with EZ indices down most.
Release calendar is light until PPI On Thursday, with only consumer credit out at 3 PM ET time today. No Fed speakers. But that doesn’t matter: today kicks off a week of heavy corporate supply and Treasury issuance. Once we get past this morning’s bill supply, we will get a new record $50BN in freshly minted 3y notes at 1 PM ET, along with at least 10 HG corporate deals lined up for today that already are over $12BN in what could be a rather impressive week.
Okay, let’s wrap this up. For choice today in TYZ, call the range at 139-20+ to 139-07, after an overnight range of 139-13+ to 139-00+. Market should stay bid rest of the European day, and likely into the 3y supply. Once that is out of the way, the RV community can look to get back some of the concession they had worked so hard to build on Friday and watched slip away this morning. Support in TYZ comes in at the 139-07 level, 139-02+ 138-29, 138-26, 138-21; resistance comes in at 139-18, 139-20+, 139-24, 139-29, 140-06.
Notice I managed not to mention elections or Covid once???? Have a great start to Fall and be careful out there,