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By William Sokolis
CHICAGO (MNI) -
US TSYS SUMMARY
Returning from extended holiday weekend, rates trading firmer, off top end of
range on modest volume, catchup safe haven buying after N Korea hydrogen bomb
test late Sat. Equities lower (emini -5.25, 2469.00), gold weaker (-1.44
,1330.91), oil firmer (WTI +0.66, 47.95).
- Asia, early safe-haven support followed by light two-way from props and fast$
in 10s, FX acct buying w/USD weaker vs. Yen, Japanese bank buying 10sreal$
bought 30s, narrow range into London crossover.
- London, mild selling/profit taking on safe haven bid gains, hedge fund buying
7s, buying in the intermediates, curve flattener in short end vs. 10s and 30s.
- Swaps, spds running mixed, spd curve little flatter, mild two-way w/rate
paying in 2s and 7s after macro acct receiving in 2s and bank portfolio
receiving in 7s and 10s.
- Eurodollars, trading firmer, Greens-Blues (Sep19-Jun21) outperforming. LIBOR
3M sets' higher: +0.0011 to 1.3172% (+0.0011/wk)
Gilts are trading mixed heading into the NY open, having pared majority of
losses following softer than expected UK service PMI data and strong demand seen
at re-opening of 50Y Gilt syndication.
- 2-yr Gilt yield is -0.1bp at 0.195%, 5-yr +0.5bp at 0.456%, 10-yr +0.4bp at
1.061% and 30-yr Gilt -0.3bp at 1.727%.
- Gilts opened on the soft side dragged lower by the belly of the yield curve as
markets opened up with a slight risk-on tone despite events in North Korea. Pick
up in UK retail sales highlighted by BRC and in China Caixin service PMI to 52.7
from 51.5 also seen weighing.
- Gilts gradually pared losses as UK service PMI dropped slightly more than
expected to 53.2 in Aug from 53.8. IHS Market says that overall, the PMI's show
the pace of economic growth has slipped to its lowest level in 6-months.
- Gilts also seen underpinned by large demand at 50-yr Gilt re-opening
syndication (22bln, according to source) and upcoming BoE repurchases in the
over 15-yr category
- There has been a distinct lake of significant GBP swaps so far today.
Over the course of the morning, there has been the smallest of curve pivoting in
Germany and very little net change in almost any of the major debt markets.
- Yet, the net movement hides a fair weakening in the Bund in the early morning
and then a subsequent recovery.
- Economic data have shown little influence upon bond prices. European PMI
indices generally came on the weak side of expectations, although a look in the
details did show slightly firmer price pressures.
- Eurozone retail sales data for July hit consensus at 2.6%Y/Y, a slight
moderation from the prior month.
- Austria successfully sold 10Y and 20Y debt and there has been a 1bp tightening
in the Ger-Aus 10Y spread from early trading this morning.
- The UK 50Y Gilt is also being syndicated and has Stg21bln in orders.
- Currency markets have been quite eventful, with the euro dropping and
recovering quite suddenly and inexplicably.
- US markets return from Labor Day later and Brainard is to make a speech.
--MNI Chicago Bureau; tel: +1 312-431-0089; email: firstname.lastname@example.org