wrapping up ahead of holiday-shortened US trading day for rates….(Thursday)

In what is clearly a holiday-impacted end to the first quarter, market volumes are down although anxiety remains fairly high. Month end/quarter end buying remains a theme globally in rates, leaving Treasuries better bid even with US index futures pointing higher. As of 8 AM ET, Treasuries are 1 to 1.5 bps lower in yield with the curve flattening while equity index futures are slightly better bid ahead of the cash open.

Cash Treasuries will close at 1 PM ET, as will trading the CME rates complex. Electronic trading in CME rates products will close normal time (5 PM ET), but there will be no real trading and certainly no liquidity after 1 PM. Equity futures and cash observe normal hours, 4:15 PM ET and 4 PM ET respectively. Everything in the US is closed tomorrow; most of Europe is out Monday, so in effect we are kicking off about a 4.5 day holiday.

Back to work for a minute, Treasuries opened Asia on their late Wednesday lows, with accounts more than happy to see if yesterday’s sloppy 7y results would generate a little more weakness, but the top of value in TY and US from Tuesday held like a champ. This brought out some early asset manager buying of US 30s for month end and then deal-related receiving in USD 30y swaps. Japanese real money used the uptick in Treasuries to sell 5s and 10s while Asian real money again spent the better part of their time lifting 2s and 3s. After Tokyo lunch, liquidity dried up a bit and a small amount of extension buying resulted in Treasuries tracking back above unchanged on the session. Locally, JGBs were a bit more active on the last real day ahead of the Japanese fiscal year end. The 2y auction caused some early concession pressure on JGBs before they bounced after an acceptable auction. Asian real money spent the session unwinding 2s30s flatteners in JPY swaps, especially when the front end cheapened on some huge paying flows (year end related) in Tibor/Libor 1y that caused 3mTibor to set 1.7 bps higher and 6mTibor to set 2 bps higher (welcome to the US markets!). Aussie 10s traded quietly until some late day selling pressure knocked them lower for quarter end. Asian equities were mixed, with major indices up between .5% (Japan) and 1+% (China), while smaller markets were marginally softer, all on Asian fiscal year end flows.

The European open saw fixed income there marked lower after the late Wednesday US sell-off, but buyers stepped in tepidly to put a floor on prices. Asian real money stepped up their Treasury buying during the European session, lifting 30s outright and paying in 2s10s on the swap curve to add some duration. Flows were more skewed to better buying to match month end once Europe got comfortable in the seat. US was biggest recipient of the buying with real money lifting 30s outright, receiving on the USD swap curve and seeing a block trade against Buxl futures (WNM vs UBM, $410K of DV01 at 4:58 AM ET) around mid-morning European time. PPIs continue to trickle out in Europe, while better peripherals (month end) have kept a lid on core performance in Germany. European equities are higher but nothing to write home about ahead of the holiday and really waiting to take their cue from US cash equities.

Today in the US, we get weekly claims data and PCE at 8:30 AM ET, followed by Chicago PMI at 9:45, and wrapping up with Michigan at 10 AM (should be good given the State school is playing in the Final 4, right???). Harker speaks right at 1 PM ET, so nobody will really be watching that closely. Then we will start the rather long but well-deserved holiday….

Okay, in a perfect world, equities would stay in a tight range, trade quietly, and let month end pass for Treasuries so we can pick things up when people are back at their desks and paying attention on Monday. I doubt that will happen. This IS the last day of a poor quarter for equities, and no one will be minding the shop from 1 PM to 4 PM today. You get my drift….although I so hope to be wrong on this one. In the meantime, reality is that anything between 2580 and 2673 in the S&P Index is just noise, but if we move outside that huge range, we will be pressed into really paying attention. As for Treasuries, for choice today call the range 120-24 to 121-17+. I have very low confidence in these numbers today given the illiquidity. I would offer that the real levels that will cause accounts to act are 2.85% and 2.65% in cash 10s, equating to roughly 120-10 and 121-26 respectively. As for levels in TYM today, resistance comes in at 121-04+, 121-09/09+, the aforementionted 121-17+, 121-31+, 122-02, 122-05 (equivalent to 2.625% cash 10s); support comes in at 122-25/24 (the overnight low, objective from today), 120-18+, 120-15+, 120-08+.

One more time for review: Barclay’s revised month end extensions. In the US, Treasuries extend .06 years, agencies by .09 years, credit by .13 years, MBS by .07 years, and the aggregate by .08 years; meanwhile, TIPS extend .01 years imperically and by .02 years in real terms. In Europe, the Euro aggregate extends .10 years, Treasuries extend .11 years, and agencies extend .13 years; the UK aggregate extends .22 years while UK Treasuries extend .30 years. In Japan, the aggregate extends .24 years and the Treasury index extends .25 years.

Have a great long holiday weekend and best wishes to you and your family,