MNI ASIA MARKETS ANALYSIS: Pre-ADP Positioning

US TSY SUMMARY: Sideways Trade Ahead Wed ADP

• After Mon's brief respite, the positive correlation between Tsy futures and equities turned back on: Bonds reversed gains as equities trade weaker in the first half, climbed back near session highs into the close as S&Ps pared losses (ESH1 -4.0). Little react to multiple Fed speakers, no substantive data
• Yield curves holding steeper profiles, however, 5s30s +4.050 at moment, just off session high of 154.405 vs. last Thu's 7Y high of 166.984. Trade more two-way, positioning ahead Fri's Feb NFP, option and deal-tied hedging in the mix, rate paying unwinds in the intermediates to long end.
• TYM technicals: Despite the recovery off last week's 131-31 low, the outlook in US 10y futures remains bearish. Price is still trading with the body of price action from Feb 25. In candle terms the pattern on this day is a bearish standard line - a continuation pattern
• Option implied vols declined vs. bounce in underlying futures, ongoing heavy downside skew buying targeting late 2022 rate hike via Eurodollar options: total +50,000 (10k screen) short Dec 95/96 put spds 3.0 over short Dec 98 calls. Heavy corporate issuance, $10B Siemens 7pt jumbo lead day's total over $25B.
• The 2-Yr yield is up 0.2bps at 0.1211%, 5-Yr is down 2.7bps at 0.669%, 10-Yr is down 1bps at 1.4068%, and 30-Yr is up 1.7bps at 2.2078%.

US TSY: Short Term Rates

US DOLLAR LIBOR: Latest settles:

• O/N -0.00062 at 0.07888% (-0.00512/wk)
• 1 Month -0.00087 to 0.10838% (-0.01012/wk)
• 3 Month -0.00087 to 0.18338% (-0.00500/wk) ** (Record Low of 0.17525% on 2/19/21)
• 6 Month +0.00625 to 0.20675% (+0.00375/wk)
• 1 Year -0.00463 to 0.27900% (-0.00475/wk)

• Daily Effective Fed Funds Rate: 0.07% volume: $68B
• Daily Overnight Bank Funding Rate: 0.07%, volume: $194B

• Secured Overnight Financing Rate (SOFR): 0.02%, $988B
• Broad General Collateral Rate (BGCR): 0.01%, $372B
• Tri-Party General Collateral Rate (TGCR): 0.01%, $337B
• (rate, volume levels reflect prior session)

• Tsy 20Y-30Y, $1.734B accepted vs. $6.569B submission
• Next scheduled purchases:
• Wed 3/3 1100-1120ET: Tsy 4.5Y-7Y, appr $6.025B
• Thu 3/4 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
• Fri 3/5 1100-1120ET: Tsy 2.25Y-4.5Y, appr $8.825B

EURODOLLAR/TREASURY OPTIONS: Summary

• +10,000 Blue Jun 83/86 put spds 1.0 over blue Jun 88/90 call spds vs. 98.785/0.26%
• -30,000 Green Jun 92/95 call over risk reversals 0.5 vs. 99.42/0.74%
• 5,000 Blue Jun 93/96 1x2 call spds
• +5,000 Green Jun 99.50/99.56/99.625 call trees, 0.0
• -5,000 short Dec 95/96 put spds, 4.0
• +10,000 Green Sep 91/92/93/96 call condors, 1.25 legs
• +7,000 Blue Jul 81/85 put spds 3.5 over 88/91 call spds, adds to +10.5k Block earlier and >20k Mon
• Block, -20,000 short Sep 96/97 put spds, 3.5, another 2.5k in pit
• total +50,000 (10k screen) short Dec 95/96 put spds 3.0 over short Dec 98 calls
• total 8,000 Green Jun 92/93/95 put flys
• Overnight trade
• Block, -12,500 Blue Dec 76 puts, 7.0 at 0758:03ET
• 4,500 Green Mar 95/96/97 put flys
• Block +10,500 Blue Jul 81/85 put spds 5.0 over 88/91 call spds vs. 98.59/0.35% at 0737:16ET, adds to >20k Monday bought and blocked from 5.0-5.5
• 5,100 short Sep 95 puts,
• 5,000 short May 99.75/99.81/99.87 call flys
• 3,500 short Jul 99.81/99.93 calls spds

• -2,000 TYJ 133/135 strangles, 35
• -1,000 TYK 133.5 straddles, 150
• 2,500 TYJ 132.5 puts, 20
• +5,000 TYJ 131.75 puts, 12-13
• Overnight trade
• Block, 30,000 FVJ 123.7/124.5 put spds, 13.5

BONDS/EGBs-GILTS CASH CLOSE: UK Long End Yields Collapse

An impressive day for Gilts, particularly at the long end, amid a broader rally in core FI.

• Gilt long-end outperformance accelerated following a long-dated BoE purchase operation that saw a low offer-to-cover (1.95x). The curve bull flattened sharply.
• Another day, another set of soothing comments by an ECB Exec Board member: this time Panetta saying that the steepening of the eurozone yield curve "must be resisted". But BTPs were weaker on an earlier report that the Italian gov't would further expand stimulus spending.
• Italy announced a mandate for its debut Apr-45 Green bond; earlier, we had issuance from Austria, Germany and the UK.
• The UK Budget is eyed Wednesday.

Closing yields/10-Yr Spreads to Bunds:

• Germany: The 2-Yr yield is down 0.6bps at -0.693%, 5-Yr is down 1.5bps at -0.644%, 10-Yr is down 1.8bps at -0.352%, and 30-Yr is up 0.3bps at 0.147%.
• UK: The 2-Yr yield is down 5.1bps at 0.048%, 5-Yr is down 5.3bps at 0.3%, 10-Yr is down 7.2bps at 0.687%, and 30-Yr is down 9.3bps at 1.241%.
• Italian BTP spread up 3.5bps at 102.7bps/ Spanish spread up 1.4bps at 67.2bps

OPTIONS/EUROPE SUMMARY: Selling Some Stg Blues

Tuesday's options flow included:

• OEJ1/OEK1 134.25/133.75/133.50p fly, bought the May for 2.25 in 2k
• IKJ1 146.00/144.00 put spread bought for 18 in 1.65k
• ERU2 100.50/100.625/100.75 call fly bought for 3.25 in 6k
• 2RU1 100.12/100.62RR, bought the put for 1 in 3k
• 3RM1 100.12p + 100.50/100.75cs, bought for 5.75 in 4k
• 0LH1 99.87/99.75ps, bought for 6.25 in 12k (ref 99.815, 65del)
• 0LM1 99.75/99.87/100/100.12c condor sold at 4.75 in 2k
• 0LU1 99.87/99.75/99.62p fly 1x3x2, bought the 3 for 2.5 in 9.25k
• 2LM1 99.50^, sold down to 24 in 4k total (ref 99.535)
• 2LU1 99.62/99.75cs x2 vs 3LU1 99.50/99.75cs, sold the green at 1.75 in 12kx6k
• 2LU1 99.25p + 99.00p with 2LZ1 99.12p + 98.87p, sold at 29 in 5k (ref 99.39)
• 2LZ1 99.50/99.75cs, sold at 8.5 in 8k (ref 99.395, 20 del)
• 2LU1 99.625/99.75/99.875 call ladder bought for 1.25 in 4k
• 3LM1 99.50/99.12ps vs 2LM1 99.62p, sold the blue at 1.5 in 7.5k
• 3LU1 98.875/98.625 put spread bought for 4.75 in 3k

FOREX: Initial Greenback Strength Reversed Into the Close

Ahead of US hours, the USD index traded at multi-week highs as the mini-dollar recovery extended. This trend switched ahead of the 1600GMT WMR fix, however, with USD selling flow dominant to boost the likes of EUR/USD and GBP/USD back into the green ahead of the close.

• This pressed the USD to the bottom-end of the G10 pile, providing some respite for haven currencies, although the USD pressure didn't stop USD/JPY inching higher to extend the current bullish sequence of higher highs.
• Vols were subdued, with front-end implieds offered across G10 FX. GBP was the only exception, with curves holding their ground given the close proximity to last week's multi-year high.
• Focus Wednesday turns to Australian GDP, final February PMI data and US ISM services index. Markets will be watching to see for further inflationary pressure after manufacturing ISM earlier in the week saw prices paid shoot to multi-decade highs.

FX OPTIONS: Expiries for Mar 03 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1900(E1.0bln), $1.2000(E1.4bln-EUR puts), $1.2040-60(E788mln), $1.2150-60(E1.0bln), $1.2300(E1.0bln)
• USD/JPY: Y105.40-60($2.1bln), Y105.95-05($649mln)
• EUR/GBP: Gbp0.8600(E1.9bln-EUR puts), Gbp0.8650(E767mln)
• AUD/USD: $0.7750-55(A$520mln)
• NZD/USD: $0.7300(N$1.2bln-NZD puts)
• USD/CNY: Cny6.46($506mln)

PIPELINE: ​$25.05B To price Tuesday, $10B Siemens 7Pt Jumbo lead

• Date $MM Issuer (Priced *, Launch #)
• 03/02 $10B #Siemens: $1.25B 2Y +30, $1.5B 3Y +40, $1B 3Y FRN SOFR+43, $1.75B 5Y +55, $1.25B 7Y +65, $1.75B 10Y +75, $1.5B 20Y +80
• 03/02 $2.75B #CBA $1.5B 10Y +130, $1.25B 20Y +125
• 03/02 $2B #HSBC $1B PerpNC5 4%, $B PerpNC10 4.7%
• 03/02 $2B Bank of England 3Y +12
• 03/02 $1.3B #Entergy $650M 7Y +87, $650M 10Y +107
• 03/02 $1.3B #Mastercard $600M 10Y +50, $700M 30Y +78
• 03/02 $1.2B *KDB 00M $3Y +20, $300M 3Y FRN SOFR+25, $500M 5.5Y +35
• 03/02 $900M #Public Service Electric & Gas (PEG) $450M 5Y +32, $450M 30Y +77
• 03/02 $850M #Boston Properties 11Y +118
• 03/02 $750M #Suncor Energy 30Y +155
• 03/02 $700M #Commonwealth Edison 30Y +90
• 03/02 $500M #Flowers Food 10Y +105
• 03/02 $500M #Orix 10Y +88
• 03/02 $500M #Caterpillar WNG 10Y +57
• On tap for Wednesday:
• 03/03 $1B Kommunivest WNG 3Y +4a

EQUITIES: Stocks Give Up Early Gains

Equities started the Tuesday session well, with most indices (particularly in Europe) notching up sizeable early gains. These were given up ahead of the close, however, with indices returning to only minor positive or, in the case of Spanish & Italian markets, minor negative territory.

• In the US, performance was mixed. The S&P 500 cash traded slightly lower while the bluechip Dow Jones held small gains. A similar picture for futures, with the e-mini S&P maintaining a sizeable gap with near-term resistance.
• In the US, tech names suffered alongside real estate, while materials firms were the best performers.

COMMODITIES: Off Worst Levels, Copper Recovers

• Lacklustre session for oil as the gains made over recent weeks have been consolidated. WTI crude futures holding onto marginal gains after rallying back above the $60 level overnight.
• Copper outperforms (+2.5%) amid renewed optimism for the bellwether metal. Southern Copper Corp. noted that prices are already well above the incentive level for new projects that would help ease the supply squeeze. However, it can take twice as long to build mines now than in the past, meaning the market wouldn't see that new supply for eight to ten years. These lags from decision to production will make the copper price cycle "a little bit longer than in the past."
• Precious metals made gains in line with the broad commodity index. Both spot gold and silver rose 0.6% aided by a weaker dollar throughout the US session. Goldman Sachs reiterated their US$2,000 target price for the gold, despite the recent liquidation of speculative positions from volatile adjustments in US yields. In a research note they commented that "due to focus on inflation risks, gold should be able to withstand the gradual pressure on rates."