waiting on a number of events, but don’t be fooled by this market….(Wednesday)

Markets spent the night awaiting today’s ECB (statement was nonevent, press conference at 8:30 AM is the real event), US CPI, today’s 10y reopening, FOMC minutes, and EU summit. As such, volumes have been muted since mid-day in Asia, with 8 AM ET marks showing Treasuries flat to .5 bps lower in yield in a steepener and US equity futures flat to marginally higher. Volume has slowed to a crawl.

The initial trade in Asia saw Treasuries find early support amid a minor flurry of buying by Asian real money accounts in US 2s and 3s that helped keep the curve steep through mid-morning in Europe. Clarida dovish comments last night, on NAIRU about pushing out beyond the current low level of unemployment, were attributed by some as the reason for the front end bid (pushes out hike pressure component from employment strength), but not sure he said anything new to be honest. Japanese real money accounts lifted 5s and 7s, while Japanese bank was active receiver in USD 5y swaps; the flows in swaps though soon turned to better corporate paying in USD 2y, 3y, and 5y swaps, while Japanese insurer was again seen receiving in USD 10y swaps and there was some receiving in USD 30y swaps supposedly related to yesterday’s Aramco issuance. Spread product was again lifted by both Japanese real money accounts, while central bank was seen buying new US 3s and buying MBS product. Locally, JGBs rallied after all the supply over the last week, yields in the belly down another 1 bps in an otherwise nondescript session. Aussie rates were bid early but came off after RBA Deputy Debelle did not signal any imminent easing in a speech mid-session. Asian equities were mixed but closed with only minor changes.

Supply was a sidebar story in Europe, with some 5 sovereigns pricing across numerous tenors today. That resulted in early selling in bunds and bobls, as the belly would see the greatest amount of issuance today. While UK GDP was a small beat, Italian, French, and UK IP were all better than expected and helped generate a better bid for risk. A new German 5y bobl auction and a reopening in the 18y gilt both saw good bidding while sovereign supply in Portugal (10y, 30y) and Finland (7y, 30y) both went without incident. Flows overall were better to sell for concessions by dealers in 10y gilts and bunds, better real money selling of buxl and bobls to make room for supply by real money accounts, with better bank buying of Italian and French 10y sectors after the better IP data (so perverse, but it was a risk trade as opposed to a growth story). Treasuries saw better RV selling of 10s shortly after the European open, buying from European real money accounts in 3y and 5y sector, along with a block sale of 6040 TYM9 at 123-22 (4:26 AM ET, a sale of $465K in DV01) that helped take Treasuries to their lows for the session.

Today’s calendar in the US includes long-anticipated March CPI data at 8:30 AM, along with real earnings, while the monthly budget statement will be released at 2 PM ET. The minutes from the March 20 FOMC meeting will also be released at 2 PM, while Treasury will auction $24BN in reopened 10y notes at 1 PM ET. Don’t forget the Draghi press conference at 8:30 AM and the EU summit later this US morning.

Yesterday was an interesting day: for a session where we stayed in a tight range and there were few drivers, there sure was a lot of nervousness when we took out the “triple high” at 123-22/22+ from the previous three sessions. Volatility traded with a bid throughout the day, call skew being the driver, as vol spiked when Treasuries traded through their early week/NFP from last week highs. There was talk of short covering in Treasuries, but the early data from the CME refutes the short covering notion: US classics were up 3K contracts, TY was up a healthy 33K, FV was up 8K, and TU was up another 37K (TU open interest is a conversation all unto itself, but will be relevant). What does this remind me of???? Oh yeah, the other week! The structural short still exists and the risk is that we will pick at that scab again very soon. Watch today’s 10y reopening: if we have good demand again, the market will go bid during Asia and won’t look back until we squeeze the core short position again next week. OK, time to wrap up. For choice today in TYM, call the range at 124-02 to 123-14+ (overnight range of 123-24+ to 123-18+). Look for potential pressure early and watch risk to rally later. As for further support in TYM, that comes in at 123-08+/08, 123-00, 122-29, 122-22; resistance comes in at 123-25+, the aforementioned 124-02, 124-05+, 124-09, 124-15+. Don’t be short gamma by the end of today unless you plan to stay up all night for the next few days, that’s all I’ll say….

Have a good hump day,