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Bullish Price Sequence

By Bill Sokolis
     CHICAGO (MNI) - 
Tsy futures trade mixed now, long end off recent lows, USD rebounds after Tue's
weak performance; 10Y yld 2.075% after tapping 2.06% Tue (Nov'16 lows). Geopol
tensions w/N Korea hold steady. Traders eye economic effects of Hurricane Harvey
and approaching Hurricane Irma.
- Asia, modest follow-through bid early Asian hours, consolidating/traded
sideways into London cross. Sources reported end users sold cash 10s, asset
manager profit taking
- London, Tsys steady/mixed in early London hours, continued mild consolidation
after Tue's sharp curve flattening rally, fast$ sellers, carry-over deal-tied
flow after Tue's $18.5B placement, supply calendar slowly building. Bank
portfolio buying 7s, selling 5s and 10s,
- Overnight repo, GC 1.11%, 2s-7s tight, 10Y at fail, -3.1%. 
- Swaps, spds running mildly wider, spd curve flatter, deal-tied flow adding to
move, light paying in 3s-5s, bank portfolio receiving 10s, 2s5s10s fly.
- Eurodollar, mildly lower, narrow overnight range on moderate two-way flow.
Sizable spd, 16,900 Red Mar'19/Green Mar'20 at 0.145 earlier.
Gilts are slipping lower into start of NY session having reversed opening
flight-to- quality bid as geo-political risks in North Korea fades, and traders
shrug off Brexit concerns.
- 2-yr Gilt yield is +0.2bp at 0.184%, 5-yr +0.1bp at 0.428%, 10-yr +0.3bp at
1.022% and 30-yr Gilt +0.4bp at 1.691% according to Tradeweb.
- Dec Gilt future opened higher taking cue from late rally in US Treasuries on
continued geo-political risk in N.Korea, however, this faded quickly and the
future dropped to unchanged levels within an hour of trading.
- UK parliament returned from summer recess on Tuesday with the main highlight
being David Davies' update on Brexit negotiations (or lack of) to the House of
Commons. Davies repeated that there was larges differences on the issue of
financial settlement and would not be held to ransom, but some "concrete
progress" had been made in other areas.
- Gilts spiked higher but then quickly dropped to fresh session lows as markets
picked up on what turned out to be an erroneous tweet from the British
Geological Society saying there was an earthquake in North Korea.
The market is clearly focused upon the geo-politics today but concrete news has
been limited so bonds have weakened slightly as the risk-off trade makes a very
small reversal.
- There was one moment of drama as a rumour quickly circulated that North Korea
had conducted another nuclear test. However, it was quickly realised that the
report was a rehash from Sunday. The spike higher in the Bund was reversed to
far lower than where it sat before the rumour.
- Early option flow in Bunds mostly involved structures that explored the
downside of the market yet swap flows were mostly receiving early in the morning
but a few front end payers have turned up in the past half an hour.
- The German 5Y Obl auction went rather well with a decent amount of bidding and
much better than the technically uncovered auction seen last month. The impact
upon prices was limited.
- Eurozone economic data was second tier. German factory orders fell in July,
compared to an expected rise.
--MNI Chicago Bureau; tel: +1 312-431-0089; email:
MNI Chicago Bureau | +1 312-431-0089 |
MNI Chicago Bureau | +1 312-431-0089 |