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US TSYS SUMMARY: Treasuries open NY higher, but slightly off the 4am ET
risk-off rally price highs hit after N.Korea overnight fired a missile that
traveled over Japan. Week's final coupon auction occurs today: $28B 7Y note
- TOKYO: Tsys had immediate risk-off buying after N.Korea missile landed in sea
near Hokkaido, Jpn: cash Tsys buy-stops hit, and fast- and real$ bought 5s and
10s. Bank and insurance portfolio buying in 30s, and FX-tied buying as USD
weakened vs. Yen; short-covering too. Asia and Japan asked for emergency UN
Security Council meeting; US Pres. Trump and Jpn PM Abe spoke for 40 minutes
with united resolve; China urged restraint.
- LONDON: Tsys rose as UK banks back after Mon holiday, with risk-off rally on
N.Korea. Tsys ebbed off high since 4am ET highs amid mild profit taking by
fast$, props in 10s and 30s; bank portfolio selling arose in 5s and 10s.
- US SWAPS: Spread curve steepens, more front end receiving: multiple $100M
receiver trading in 5s, bank rate receiving in 10s, macro receiving in back end.
- US HIGH-GRADE CORPORATE BOND ISSUANCE: No issuance Tuesday in risk-off mood
and vacation-thin syndicate desks; Sept pipeline builds though.
- OVERNIGHT REPO: Tsy 2Y, 3Y, 5Y and 10Y Notes all tight.
EGB SUMMARY: Bunds soared from the moment that European trading got underway,
responding to events surrounding North Korea.
- All the usual risk-averse assets performed strongly with notable movements by
gold, that hit its highest since November and the EURUSD that moved above 1.20%.
Even JGBs got in on the act and almost touched 0%.
- That risk-off move was sustained all the way up until the Schatz auction,
which was very poor and technically uncovered. At its best, the Bund 10Y yield
was 5.5bp lower on the session but is now only 4.5bp lower at 0.331%.
- Peripheral debt performed very poorly relative to Germany although absolute
yield changes have been close to zero, with the spread enlargement and
compression mostly led by German curve movements. Currently, the Bund-BTP spread
is 4.6bp wider at 175.2bp.
- EFSF is busy selling a 2040 maturity security, books closed with over E2.4bln
of orders excluding JLM and the market is awaiting pricing.
- Economic data has been fairly limited and headlined by July French consumer
spending numbers that were robust but close to consensus.
GILT SUMMARY: UK Gilts are trading sharply higher due to risk-off sentiment, but
are off session best levels, as strangely, a technically uncovered German Schatz
auction weighs heavily on the Gilt market.
- The curve has pivoted around the 10-yr area with yield on the 10-yr Gilt
-4.8bp at 1.06%, while 2s/10s spread is 3.5bp flatter and 10/30s 1.2bp steeper.
- Gilts opened sharply higher as markets played catch up following August Bank
Holiday and in reaction to overnight news of N.Korea firing a missile over
Japan, which led to risk-off flows.
- Markets also digesting the start of third round of Brexit negotiations in
Brussels, which have got off to a rather tense start with EU's Barnier warning
the UK that it needed to start negotiating "seriously". While UK's Davies called
on the EU to "show flexibility and imagination".
- EU's Juncker then weighed in saying won't enter new relation talks until
- Majority of Swap spreads are trading marginally wider. While Breakevens are
tighter with 10-year and 30-year in the region of 1bp tighter.
--MNI New York Bureau; tel: +1 212-669-6432; email: email@example.com