waiting on NFP, and waiting to see the first pain trade of 2020 (Friday)

Markets are biding time ahead of today’s NFP payroll report at 8:30 AM ET. It has been a quiet, mildly risk-friendly trade, but everything depends on 30 minutes from now. As of 8:00 AM ET, Treasuries are either side of flat in a small flattener with 30y outperforming belly of the curve, while US equity index futures are marginally higher well ahead of the employment report and the cash open.

Treasuries kicked off the session under mild pressure. Asian real money was a sporadic, light seller of 5s and 10s in cash, along with small payer in USD 30y swaps. Asian banks meanwhile used the pressure on rates to adjust their positions, although some of their activity looked deal-driven, as those accounts received in USD 10y and 30y swaps (the latter likely related to the four Formosa deals that priced yesterday), while adding to their pay USD 5y core positions. RV accounts bought 30s both outright and on the curve against 2s and 5s after Tokyo lunch, beginning a flattening that has continued through the European session. There was one block trade overnight, taking place at 7:40 PM ET, as account jettisoned 40K TYG 127 puts and 10K TYG 127.5 puts (both at 1/64) to add 25K TYG 127.5 puts (for 13/64). Locally, better Aussie retail sales and concession building for AOFM issuance next week caused Aussie rates to back up almost 2 bps, while JGBs were flat to .5 bps lower in yield and Kiwi rates were flat. Asian equities were mixed in a quiet trade, with China down (less than .2% though across all indices) while rest of Asia was small better to risk.

Europe opened better bid on some deal-related hedge unwinds in bunds and bobls that helped support Treasuries and gilts, but flows remained muted. BTPs opened much better bid and have outperformed bunds by 4 bps on the night in 10y sector as proposed changes to the electoral laws in Italy are hoped to resolve the current fiscal and political crisis in the boot (good luck on that one!). Revisions to Nov IP data in Europe was uniformly better for Italy, Spain and France, but the stale data hardly registered a notice in the markets. With little on the issuance docket in Europe today, fixed income in Europe was free to trade better. Real money account was seen buying RXG 173 calls to sell RXH 173 calls (so selling the calendar at 24.5 tics), while RV account lifted bunds against schatz and bought buxl outright. Comment from BoE’s Tenreyo echoing the sentiments of Carney that there is more available in the event of any slowing (this was after gilts fell on her earlier comments about a tight labor market) has underpinned gitls. Hedge fund was seen buying short sterling reds against 2y gilts and sterling greens, UK real money lifted 2y gilts, while there was also some small issuance-related selling of gilts. Treasuries saw very light flows, rallying back to unchanged by mid-morning in London. Flows remained light: some hedge fund covering shorts in TY, more deal-related (unwinds) receiving in US swap long end, European real money buying of US 10s outright and on the curve against 3s, and some asset manager paying in US 7y swaps. European equities were better bid early in the session but are now trading roughly flat across the continent.

Today is all about the NFP report for December, to be released at 8:30 AM ET. Aside from that, we get wholesale inventories at 10 AM that will be ignored. There is no Treasury issuance, a very light corporate calendar (although watch for some rate locking later in the NY morning), and currently not a scheduled appearance on the docket.

Several dealer and market survey show a clear bias to buy any pullback in rates and very little bias to sell a rally. Those surveys are worth about as much as my ticket to watch the Bears in the playoffs this year, except for when we are on an extreme in rates or the numbers approach a limiting factor of 0 or 100. That is not the case today. FOA for today traded 4 bps yesterday and currently is middled right about there, not real indicative of a big day. So what’s a person to do? Guess here (and it ain’t exactly rocket science here) is 1.70% and 1.94% are the bounds here, so that works out to roughly 130-07 and 128-00 respectively in TYH. Against any move to 130-07, you are selling for a trade; against 128-00/04, you buy the first time down but be out or short on a retest. Risk on the lower bound remains to take it out and get after some weak longs set in the last two weeks; the short is not big enough yet for us to see a good squeeze until we get rid of those weak longs. That’s the thinking here. So for choice today in TYH, let’s call the range at 129-10 and 128-11. If you are going to get the trade up to the magic 129-10 level, it will likely be into/on the number; a break early without trading above 129-04 may take all the fire out of the market though, and turn this day into a quick dud. As for support in TYH, watch 128-21+/20+, 128-14/13, the aforementioned 128-11 level, 128-00/01, 127-25; resistance comes in at 129-01, 129-04, the aforementioned 129-10, 129-17 (one major note: get through here and it may be time for me to visit the clue salesman!!!), 129-26, 130-00+.

All right, enough! Good luck out there today and have a great weekend….