MNI ASIA MARKETS ANALYSIS - Vaccine Headline Related Volatility

US TSY SUMMARY

Tsy mostly weaker after the bell, short end outperforming, yield curves broadly steeper as January draws to an end (2s30s +6.1bp; large midmorning block buy +17,733 TUH at 110-15.75). Heavy volumes on late month end flow drew better selling instead of extending duration, approximate volumes in last 5 minutes of trade: TYH1 175k, USH1 35k, 115k FVH1 and 30k TUH.

• Prior to the sell-off, Tsys pared losses -- headed back to pre-open levels when futures gapped higher on J&J effectiveness headlines. J&J bump didn't last long: follow-up headline notes slightly higher effectiveness in US of 72% and "shot's immunity likely to ramp up over time" Bbg.
• Second-half support from falling equities (ESH1 -67.0) w/energy sector (refiners, extractors, etc) leading losses. Desks also pointed out risk negative headline: "PFIZER CEO: HIGH POSSIBILITY FUTURE VARIANT WILL ELUDE VACCINES," Bbg added to risk-off tone.
• Heavy buying in Eurodollar front end, Whites through Reds were +0.010-0.015 for much of day scaled back slightly late. Note 3M LIBOR -0.00312 to 0.20188% (-0.01337/wk) ** 3M New record Low vs. 0.20488% on 11/20/20
• The 2-Yr yield is down 0.2bps at 0.1152%, 5-Yr is up 1.6bps at 0.443%, 10-Yr is up 4.6bps at 1.091%, and 30-Yr is up 5bps at 1.8545%.

FINAL Barclays/Bbg Extension Estimates

Forecast summary compared to the avg increase for prior year and the same time in 2020. TIPS -0.16Y; Govt inflation-linked, 0.23.

US TSY: Short Term Rates

US DOLLAR LIBOR: Latest settles:

• O/N -0.00050 at 0.07875% (-0.00750/wk)
• 1 Month -0.00338 to 0.11950% (-0.00525/wk)
• 3 Month -0.00312 to 0.20188% (-0.01337/wk) ** 3M New record Low vs. 0.20488% on 11/20/20
• 6 Month +0.00312 to 0.22325% (-0.01275/wk)
• 1 Year +0.00038 to 0.31113% (-0.00112/wk)

• Daily Effective Fed Funds Rate: 0.07% volume: $67B
• Daily Overnight Bank Funding Rate: 0.07%, volume: $195B

• Secured Overnight Financing Rate (SOFR): 0.04%, $906B
• Broad General Collateral Rate (BGCR): 0.03%, $363B
• Tri-Party General Collateral Rate (TGCR): 0.03%, $325B
• (rate, volume levels reflect prior session)

• TIPS 7.5Y-30Y, $1.201B accepted vs. $5.569B submission
  Updated NY Fed operational purchase schedule, $40.2B from 2/01-2/11:
• Mon 2/01 1100-1120ET: Tsy 20Y-30Y, appr $1.750B
• Tue 2/02 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
• Wed 2/03 1100-1120ET: Tsy 4.5Y-7Y, appr $6.025B
• Thu 2/04 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
• Fri 2/05 1100-1120ET: Tsy 0Y-2.25Y, appr $12.825B
• Mon 2/08 1010-1030ET: Tsy 7Y-20Y, appr $3.625B
• Tue 2/09 1010-1030ET: TIPS 1Y-7.5Y, appr $2.425B
• Wed 2/10 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
• Thu 2/11 1010-1030ET: TIPS 2.25Y-4.5Y, appr $8.825B
• Thu 02/11 Next forward schedule release at 1500ET

EURODOLLAR/TREASURY OPTIONS: Summary

• BLOCK, -25,000 +Green Dec'23 96/100 call spds vs.
• +25,000 +Green Dec 87/91 put spds 0.0 net vs. EDZ3 99.395/0.35%
• +10,000 Dec 98 calls 2.5
• +5,000 Green Jun 92/95 put spds, 2.75 legs
• update, +25,000 Blue Mar 95 calls, 1.0
• update, -17,000 long Green Mar 97 calls, 11.5 vs. 99.715/0.40%
• update, +23,500 Jun 99.75/99.81 2x1 put spds
• +2,000 short Dec 95/96/97 put flys, 2.5
• +10,000 Red Sep 96/97 call spds, 3.25
• +5,000 Mar 97/98 put spds, 0.75
• Overnight trade
• 8,000 Blue Jun 90/91/92/95 broken call condors
  
• 10,000 Blue Jun 93/96 call spds
  
• 1,450 Blue Mar 90/93 2x1 put spds

• Block 9,000 TYK 134.5/136 put spds, 29 vs. 136-04/0.22%
• 8,500 TYH 139 calls, 3
• update, 20,900 TYH 136.5 puts, 12-15
  
• Block, 5,000 TYH 135 puts, 2
  
• 14,000 TYH 136 puts, 5-6
  
• 4,400 TYH 136.5 puts, 12
• Overnight trade
• Block -10,000 TYJ 135/137 call over risk reversal, 1, more on screen
  
• 5,000 USH 167 puts, mostly 26
• 5,000 USJ 161 puts, mostly 20
• 3,000 USJ 166/172 strangle or risk-reversal

EGBs-GILTS CASH CLOSE: Weak End To The Month

Gilts weakened and the German curve bear steepened to highest levels since September (5s30s) in the last session of January.

• Mixed-to-positive news from JnJ's vaccine efficacy data, pushback from Rtrs Sources and Makhlouf on ECB rate cut prospects, and strong Q4 European GDP readings lent bearish tone, even as equities headed lower.
• Italian spreads drifted off early tight levels on headlines that Salvini urged Pres Mattarella to call early elections. Though not particularly surprising, it brought snap election risk back to the forefront just ahead of the weekend. Headlines that 5-Star would back Conte helped spreads down later.
• Next week's schedule highlighted by the Bank of England decision.

Closing yields/10-Yr Spreads to Bunds:

• Germany: The 2-Yr yield is up 1.2bps at -0.733%, 5-Yr is up 1.7bps at -0.735%, 10-Yr is up 2.1bps at -0.518%, and 30-Yr is up 2.4bps at -0.077%.
• UK: The 2-Yr yield is up 0.7bps at -0.106%, 5-Yr is up 1.4bps at -0.028%, 10-Yr is up 4bps at 0.327%, and 30-Yr is up 4.7bps at 0.897%.
• Italian BTP spread down 1.4bps at 116.1bps/ Spanish up 0.4bps at 61.6bps

EUROPE SUMMARY: More Downside In Schatz, Bund

Friday's options flow included:

• RXJ1 173.50/171.50ps vs RXH1 176.50p, bought the ps for 11 in 2k
• RXJ1 172/176.5^^, sold at 53 in 5k
• RXM1 174.50/172.50ps 1x1.5, bought for 40.5 in 1k
• DUH1 112.30/112.20ps, bought for 2.5 in 6k
• 3RH1 100.375 puts bought for 2 in 6k
• 0LK1 100.00/12cs 1x2, bought for 0.75 in 1k
• 0LM1 100.12/100.00/99.75 broken p fly, bought for 1 in 2k
• 0LM1 100.00/100.12cs, sold at 2.75 in 5k
• 0LU1 99.87/99.75/99.62p fly 1x3x2, bought for 0.75 in 7.5k

FOREX: AUD Weakness Pervades as Equity Selling Sets In

JPY started the session comfortably the poorest performer in G10, with USD/JPY's break of the bear channel downtrend the latest driver. Into the US close, however, equity selling set in, extending the S&P500's weakness to well over 2%, pulling the rug out from under growth-proxies and commodity-tied FX.

• This pressured AUD nicely, which underperformed most others. Nonetheless, markets failed to press AUD/USD through the Thursday lows thanks to a mixed USD. A break through the Thursday low at $0.7592 would expose the 50-dma open the lowest levels since late December for the pair.
• Focus in the coming week turns to the ISM and NFP data for January as well as rate decisions from the Australian, UK and Indian central banks.

Expiries for Feb NY cut 1000ET (Source DTCC)

• EUR/USD: $1.2000(E1.5bln), $1.2220-30(E1.2bln-EUR puts), $1.2300-05(E786mln)
• USD/JPY: Y102.30-50($805mln), Y104.45-60($924mln), Y105.50($500mln)
• GBP/USD: $1.3550(Gbp547mln)
• USD/CNY: Cny6.4835-00($530mln)

PIPELINE: January High-Grade Issuance Over $227B

Thursday's Issuance pushed January running total to $227.55B

• Date $MM Issuer (Priced *, Launch #)
• 01/?? $Benchmark IDB 5Y +5a
• $8B Priced Thursday; $41.5B/wk
• 01/28 $5B *JP Morgan $2B 6NC5 fix/FRN +62, $3B 11NC10 fix/FRN +90
• 01/28 $1.5B *Cargill $500M 3Y +25, $500M 5Y +40, $500M 10Y +65
• 01/28 $1.5B *Airport Authority HK $900M 10Y +65, $600M 30Y +80

Stocks Soften Further into the Close

E-mini S&P hit the days low following the London close, extending losses on the session to over 70 points as energy and tech names led losses in the US. WTI crude futures re-targeted the week's lows ahead of the Friday close, leading the likes of Exxon Mobil, Chevron and Occidental Petroleum to trade with losses of as much as 3%.

• Single stock turmoil continues to unsettle markets. The much-watched GameStop opened higher by over 100%, before fading, although sharp gains are still noted into the Friday close.
• European shares closed with losses of near 2%, with Spanish, French names underperforming.
• Earnings remain a driver, with Alphabet and Amazon both due in the coming week.

COMMODITIES: WTI Gives Up Strong Start

Risk took a hit headed into the Friday close, with month-end related selling, a series of sell programs in US equities, and concerns over elusive COVID-19 variants impacting vaccine rollouts hitting crude prices. WTI rallied earlier Friday to touch $53.25, before fading as US markets took profits on the rally. This pressured prices to close close to the week's lows of $51.82.

• Gold's correlation with equities continued Friday, with prices ramping higher early Friday to top the Thursday highs before fading into the close as equities traded heavy. Gold continues to trade either side of the 200-dma at $1850.65.