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Decent action for a no-data session, long end bounced from opening session lows with yield curves scaling back from highs.
- Long end bounces back to steady after 30YY topped 2.0% (2.0041%) in late overnight trade, one year high. Some desks cited FX markets for initial move: 30Y bounced as US$ topped out vs. Yen -- yield curves paring gains as dollar coming off.
- Sources reported some 5s30s steepener unwinds after basis topped 152.0 overnight (152.305 high) levels not seen since mid-2015. Appears some accts taking cue from last week's Treasury refunding extension in 10s-30s from $24B to $27B. 5s30s curve 147.025 after the bell.
- Two-way midmorning flow saw better buying from fast$ and prop accts in intermediates, real$ buying 30s. Sporadic reports of variable annuity hedge/sales from insurance portfolios that has helped drive yield curves to multi-year highs, has grown quiet since last week's Tsy refunding.
- Market has become more inured to Covid-related headline risk, more short-term, inter-day moves tied to vaccine efficacy and/or availability while mortality rates have moderated in developed countries.
- Trump's impeachment trial Tuesday unlikely supporting factor in rates.
- The 2-Yr yield is up 1bps at 0.1111%, 5-Yr is up 1.4bps at 0.4768%, 10-Yr is up 0.2bps at 1.1653%, and 30-Yr is down 2.3bps at 1.9478%.
US TSY: Short Term Rates
US DOLLAR LIBOR: Latest settles:
- O/N -0.00163 at 0.08125% (+0.00413 net last wk)
- 1 Month +0.00162 to 0.12050% (-0.00062 net last wk)
- 3 Month +0.00450 to 0.19538% (-0.01100 net last wk) ** vs. record Low on 2/05/21: 0.19088%
- 6 Month +0.00050 to 0.20750% (-0.01625 net last wk)
- 1 Year +0.00225 to 0.30638% (-0.00700 net last wk)
- Daily Effective Fed Funds Rate: 0.08% volume: $72B
- Daily Overnight Bank Funding Rate: 0.07%, volume: $205B
- Secured Overnight Financing Rate (SOFR): 0.02%, $933B
- Broad General Collateral Rate (BGCR): 0.01%, $367B
- Tri-Party General Collateral Rate (TGCR): 0.01%, $332B
- (rate, volume levels reflect prior session)
- Tsy 7Y-20Y, $3.599B accepted vs. $10.436B submission
- Next scheduled purchases:
- 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: SummaryEurodollar Options:
- -2,000 Gold Mar 88/90 put spds, 9.0
- -10,000 Blue Jun 88 puts, 5.5
- +5,000 Red Sep'22 95 puts, 4.5
- +3,000 Green Jun 98 straddles, 16.0
- Block +20,000 Green Jun 91/93 put spds, 2.0 at 1048:39ET
- +5,000 Green Dec 87/88/91 broken put fly, 4.0 vs. 99.27/0.10%
- +1,000 Red Sep'22/Dec'22/Green Mar'23 97 straddle strip w/Green Jun'23 96 straddle, 106.5
- 3,000 short Mar 96/97 put spds vs. Blue Mar 93/95 put spds, 11.0 net/blues sold over
- -7,500 Blue Jun 83/86 2x1 put spds, 1.0 earlier
- Overnight trade
- Block, 3,450 Blue Dec 98.37/98.87 3x2 put spds vs. Blue Dec 92 calls x2, 1.0
- 7,000 Mar 99.87/99.937 call spds, 0.25
- 7,000 Blue Dec 98.37/98.87 2x1 put spds vs. 99.37 calls
- 3,900 Mar 99.81/99.87 1x2 call spds
- Block +11,000 TYH 135 puts, 1
- -7,000 TYJ 134.5/137 strangles, 28
- 10,341 TYH 135 puts vs. 3,447 TYM 133.5 puts, 21 net 3x1 put calendar
- +2,000 TYH 137/137.5 1x2 call spds, 3.0
- +2,500 TYH 138.5 calls 1
- Overnight trade
- Block: 5,000 TYH 134.5/136.5 put spds 4
- Block: 10,000 TYH 137.5 calls, 3
- 3,000 TYJ 134.5 puts 21
- 2,500 USH 164.5 puts, 27
The session began with a bear-steepening sell-off and ended with a duration rally for Gilts and Bunds.
- No discernable headline trigger for the reversal, with equities higher for most of the afternoon (before a late fade), but perhaps a case of having gone too far too quickly.
- BTP spreads came off the lows but still tighter on the session as Draghi gov't formation talks continue in Italy.
- BoE's Bailey and ECB's Lagarde spoke in the afternoon but added little new.
- Slow in supply today, but Tuesday sees German linker auction, Netherland Jul-31 DSL via DDA, and Spain new 50-Yr syndication.
Closing yields/10-Yr Spreads to Bunds:
- Germany: The 2-Yr yield is unchanged at -0.711%, 5-Yr is up 0.2bps at -0.686%, 10-Yr is up 0.3bps at -0.445%, and 30-Yr is up 0.5bps at 0.019%.
- UK: The 2-Yr yield is down 0.8bps at -0.033%, 5-Yr is down 0.3bps at 0.081%, 10-Yr is down 0.7bps at 0.475%, and 30-Yr is down 1.4bps at 1.058%.
- Italian BTP spread down 2.9bps at 95.3bps/Spanish spread unchanged at 57.2bps
Monday's options flow included:
- DUH1/K1 112.20/10ps strip 1x2, sold the 1 at -1 (receive) in 3.75k
- RXH1 177c, bought for 12 in 1k
- RXH1 175/177 RR, bought the put for 13 in 5k
- RXJ1 173/172/171/170p condor bought for 25.5 in 10k
- RXJ1 173.50/172.50/170.50p fly 1x3x2, sold at 45 in 1k
- RXH1 176/175ps, sold at 43 in 3.5k
- OEJ1 135.5/135.75/136.00c ladder, bought for 1 in 1k
- 3RM1 100.25/100.37/100.50c ladder, bought for 6.25 in 4k
- LZ1 99.875 put bought for 2.25 in 3.25k (earlier)
- LZ1 99.87/100/100.12c fly, bought for 4.5 in 3k
- LZ1 100.00/99.875 1x2 combo, sells the call at flat in 20kx40k (v 99.965, 94d)
- 0LZ1 99.62/99.37as, bought for 3 in 6k
- 2LU1 99.87^, bought for 31 in 2.1k
The greenback extended the Friday sell-off to start the week despite some early strength in the USD index Monday. This worked in favour of EUR/USD, extended the bounced off the Friday lows to show above the 1.2060 level. The single currency found some support as Italian PM-designate Draghi drew some support for his prospective government and was said to have told Italian lawmakers that a common EU budget is a priority going forward.
- AUD, NZD were the best performers in G10, with the currencies gaining amid a general risk-on environment. Both oil and equities hit new cycle highs, with the e-mini S&P touching new record levels while Brent crude oil showed above $60/bbl for the first time in over a year. SEK was the poorest performer, with the market pre-positioning ahead of this week's Riksbank rate decision.
- Focus Tuesday turns to Italian industrial production and speeches from ECB's Visco, Fed's Bullard and RBA's Jones.
- EUR/USD: $1.1850-55(E511mln), $1.2000(E853mln), $1.2050-60(E638mln), $1.2160-75(E591mln)
- USD/CAD: C$1.2960($1.2bln)
- USD/CNY: Cny6.4325-35($812mln), Cny6.45($781mln), Cny6.50($2.1bln), Cny6.55($1.2bln)
$9.75B To price Monday
- Date $MM Issuer (Priced *, Launch #)
- 02/08 $3.75B #Arab Rep of Egypt $750M 5Y 3.875%, $1.5B 10Y 5.875%, $1.5B 40Y 7.5%
- 02/08 $3.25B #Crown Castle $1B 5Y +63, $1B 10Y +98, $1.25B 20Y +115
- 02/08 $1B #Becton Dickinson 10Y +80
- 02/08 $1B *McCormick WNG $500M 5Y +48, $500M 10Y +78
- 02/08 $750M #Kinder Morgan 30Y +165
- 02/08 $500M US Steel 8NC3 investor call
- Rolled to Tuesday:
- 02/09 $Benchmark Cades 5Y +9
- 02/09 $Benchmark European Inv Banks (EIB) 10Y +13a
Equity markets across Europe and the US rose further Monday, resulting in the e-mini S&P showing above 3,900. In the US, gains were driven by energy and materials names after the supportive rally in oil prices saw Brent crude futures show above $60/bbl. Utilities and real estate were the laggards.
- In Europe, stocks saw similar gains, with the Italian FTSE-MIB adding close to 1.5% on further signs of political stability. PM-designate Draghi could assume office as soon as Friday, with early reports suggesting support for the former ECB President.
Both WTI and Brent extended the recent strength to prompt new cycle highs for both benchmarks and boost Brent above $60/bbl for the first time in over a year. Early USD strength was no blocker, but prices got a further boost as this trend reversed into the Monday close.
- Commodity strength was soon across the board, however, with copper, iron ore and precious metals prices similarly gaining. Spot gold recovered back above the Thursday highs, but has to retake the 200-dma at $1854.24 to recover any upside impetus.