US markets in true random walk this AM, not sure anyone is awake….(Friday)

It’s Friday and the volume/participation in the market overnight seems to indicate everyone got the memo. TY futures have traded through 150K contracts only in the last hour, putting their volume in line with year end levels. Treasuries have had a random walk around unchanged to slightly better bid, while US equity index futures have shrugged off some early pressure for now. As of 8:00 AM ET, Treasuries are mixed to slightly lower in yield while US equity index futures are at their best levels of the night, up .7% roughly, ahead of the cash open.

Today’s calendar brings durable goods at 8:30 AM ET, with the probably more important U of Michigan at 10 AM ET. Other than that, the cupboard is barren with the Fed in blackout ahead of next week’s meeting, and a heavy slate of Treasury issuance beginning Monday (2y). Today’s buyback will see the Fed purchase roughly $12BN of 0-2.25y paper at 10:30 AM ET and approximately $12BN of 7.5-30y TIPs at 11:20. Let’s see what the Fed announces about purchases for next week, usually in a NY Fed Ops statement at 3:00 PM ET.

Overnight was fairly quiet. The theme for Treasuries was Asian selling of better levels. With supply in 2s, 5s, and 7s next week, the belly was a focus of selling for Japanese real money, who largely extended out the curve by selling 5s and 7s to buy 10s and 30s. Japanese asset managers bought 10s and sold mortgages, while central banks were seen buying 7s and mortgages. Asian banks were back to hedging plan, paying in USD 5y swaps throughout the Asian afternoon and London morning. Long end of Treasury curve ticked its best levels of the night on the European open, at which point the Asian real money got a bit aggressive in selling TY and US classic contracts in the only volume of the night for the futures complex. There was a large 5/7/30 USD swap fly that traded, really pressure rates as well, followed by outright deal-related paying in 5s and 7s. Treasuries completed their pullback to unchanged when US equity futures erased their gains and went bid at 5 AM ET.

Bunds outperform other fixed income markets for now as the Eurogroup statement left too much unclear for comfort; Italy opened under heavy pressure, but has since bounced sharply (everyone getting comfortable that Moody’s telegraphed no downgrade for Italy today). Couple block buys in RXM contract have underpinned European rates market as bunds trade 5 bps lower in yield today compared to only 1 bp in UK and less than that in US. Gilts holding up on expectation that BoE will expand buyback programme this afternoon given the increased issuance announced by DMO yesterday.

So we have traded an excruciatingly tight range this week: 14 bps in 30y cash and 10.5 bps in 10y cash. You really think we are going to break out today??? Small chance, even though it seemed realistic yesterday. But just for chuckles, we do have May options expiration. So high open interest strike is at 138-00 in TY, but pretty balanced between put and call. The high disparity is ironically at the 139-00 (ATM) and the 140-00. Would have thought we would have started the move by now if we were going to put some pain on people. Interesting that while Classics and FV are much smaller, the risk in both is the upside call (183-00 and 126-00 respectively).

Open Interest in Expiring May Options today:
4500 180.00 3000
1000 180.50 1500
2000 181.00 2000
1000 181.50*** 500
2500 182.00 200
2000 182.50 750
7000 183.00 500

46,000 138.00 42,000
5000 138.25 7000
19,000 138.50 21,000
9000 138.75 5000
38,000 139.00*** 12,000
19,000 139.25 7000
27,000 139.50 4000
12,000 139.75 1000
27,000 140.00 2500

11,000 124.50 23,000
8000 124.75 11,000
21,000 125.00 22,000
8000 125.25*** 5000
23,000 125.50 4000
8000 125.75 1000
18,000 126.00 0
***denotes ATM as of 7 AM ET on Friday.

So for choice today in TYM, let’s call the range at 139-12 to 138-30+. Here is the deal: if we take out the pivot at 139-14 before noon, then watch out for the an effort to make a run at 140-00. After noon, and that run takes place next week. Let’s call resistance 139-08, the 139-12 objective, 139-14, then today watch out because it won’t matter before 140-00 if you get through here, 140-08, and 140-18. Support comes in at the 138-30+ level, 138-22+, 138-15+, and then it wouldn’t matter because you would be headed to 138-00 with a bullet, 137-28, 137-24. I don’t know. Would have bought the TYK straddle for 22 last night, and been angry today! So there ya go.

Enough for now…have a restful, enjoyable and HEALTHY weekend,