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Eurodollar/Treasury Roundup

US
US FI markets trading broadly weaker after the bell, nice risk-on tone to the end the week with equities making new session highs late (ESH2 taps 4530.75) after trading weaker on this morning's headline Jan employment release.
  • Sell-side economists overestimated knock-on effects of Covid variant on the economy while giving Wednesday's huge ADP miss (-301k) too much credit in adjusting Jan NFP forecasts lower (some called for -250k job losses).
  • Friday's stellar gain of +467k jobs in Jan and up-revision totals for November and December of +709k weighed heavily on rates (and equities briefly) as markets rushed to reprice more aggressive rate hikes in 2022 and spill-over to 2023.
  • Short end rates now price in appr 50% chance of 50bp liftoff in March and another 50bp go in Jun, with 150bps total hikes by year end.
  • Equities traded weaker post data but recovered and traded higher into late trade. Markets will be keeping close eye on next Thu's CPI inflation metric (0.4% est vs. 0.5% in Dec) while latest earnings cycle winds down.
  • Overall option volumes were not overwhelming, some continued unwinds of existing long put and put spds, some repositioning to hedge greater chance of 50bps hike in June. Implied weaker after initial gains on severity of post-data sell-off, settled in as real vol evaporated in the second half.
  • The 2-Yr yield is up 12.2bps at 1.318%, 5-Yr is up 11.3bps at 1.7831%, 10-Yr is up 10bps at 1.9302%, and 30-Yr is up 8bps at 2.2312%.
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