MNI ASIA MARKETS ANALYSIS: Discounting Taper-Talk

US TSY SUMMARY

• Bonds lead move higher after Philly Fed came out weaker than exp, 31.5 vs. 41.5 exp. (May prices paid 76.8 vs. 69.1 in April, however), weekly claims little lower than exp at 444k vs. 450k exp.
• Tsy futures quietly extended session highs in the lead up to Tsys $13B 10Y TIPS auction re-open, while a 10Y Block buy (+8.4k TYM1 132-15) contributed to the move. Decent volumes partially tied to surge in Jun/Sep quarterly futures rolling, well over 330k total between 5s and 10s. Reminder, Jun quarterly options expire Fri
• Thursday's $13B 10Y TIPS auction re-open drew high yield of -0.805% w/2.50x bid-to-cover, high yld compares to -0.580% on prior auction on March 18, and 5-month average of -0.866%. Indirect take-up was 68.60%, down from 73.91% in March; Primary dealer take-up 15.55%, little better than a 15.29% 5M average; Direct take-up 15.86% vs. 15.22% in March.
• The 2-Yr yield is down 0.8bps at 0.1472%, 5-Yr is down 4.4bps at 0.813%, 10-Yr is down 4.1bps at 1.6301%, and 30-Yr is down 3.1bps at 2.3386%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest Settles

• O/N -0.00050 at 0.06113% (-0.00088/wk)
• 1 Month -0.00400 to 0.09250% (-0.00500/wk)
• 3 Month +0.00088 to 0.15013% (-0.00500/wk) ** (Record Low 0.14925% on 5/19)
• 6 Month +0.00062 to 0.18425% (-0.00338/wk)
• 1 Year +0.00050 to 0.26400% (-0.00188/wk)

• Daily Effective Fed Funds Rate: 0.06% volume: $60B
• Daily Overnight Bank Funding Rate: 0.05% volume: $249B

• Secured Overnight Financing Rate (SOFR): 0.01%, $891B
• Broad General Collateral Rate (BGCR): 0.01%, $368B
• Tri-Party General Collateral Rate (TGCR): 0.01%, $351B
• (rate, volume levels reflect prior session)

• Tsy 22.5Y-30Y, $2.001B accepted vs. $5.802B submission
• Next scheduled purchases:
• Fri 5/21 1010-1030ET: Tsy 7Y-10Y, appr $3.225B

US TSYS/OVERNIGHT REPO: Holding Steady

Holding steady while bills and GC dip: T-Bills: 1M -0.0025%, 3M 0.0051%, 6M 0.0152%; Tsy General O/N Coll. 0.00%.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• +10,000 Sep 99.812 puts, 1.25
• Block +12,000 short Mar 99.87 calls, 2.0 vs. 99.545/0.10%
• +2,000 short Mar 95 straddles, 32.5
• +10,000 Dec 99.81/99.87/99.93 call trees, 1.0
• +2,000 short Mar 95/Green Mar 88 straddle strip, 87.5 earlier
• +6,000 Blue Sep 81/82/83/85 put condors, 2.0 vs. 98.48/0.05%
• +5,000 short Sep 93/95 put spds, 0.75 legs
• Overnight trade
• -25,000 Gold Sep 75 puts, 5.0, adds to -32k Wed from 5.5-5.0 (OI only -2,400)
• -5,000 Gold Sep 72/85 call over risk reversals, adds to 15k on Wed (OI +14,000)
• 3,000 Green Oct 82/86 3x2 put spds

• -11,500 TYQ 129.5 puts, 20
• 4,600 TYN 130.5/131.5 2x1 put spds
• -2,000 FVN 123.25 calls, 35.5
• 4,000 TYN 132/TYQ 131.5 put spds, 0.0
• -6,000 TYM 131/132 1x2 call spds, 35
• +4,700 USN 153/155 2x1 put spds 3-2 cr
• +5,000 TYN 128/128.5 put spds, 2
• -10,000 FVM 123.75/124.25 call spds 26.5-26
• -7,000 TYN 132 calls, 25
• Overnight trade
• +15,000 wk4 TY 130 puts, 2
• +2,500 FVU 122.25/122.75/123.25 put flys, 2.5

EGBs-GILTS CASH CLOSE:  BTPs Lead Recovery

Core European bonds recovered early losses Thursday as yields turned largely flat on the session in the afternoon. Limited data/newsflow, with some anticipation of Friday's flash May PMI readings.

• The risk-on tone (as equities continued to rebound from Wednesday's mini-rout) saw BTP spreads compress sharply, outperforming peers.
• A few central bank speakers today, but the main comments were by ECB's Lane who said the eurozone economy was still "in a hole", and stressed both that short-term data would be "noisy" and that a sustained recovery should be assumed.
• With no supply, PMIs are the highlight of Friday's calendar; we get ECB's Lagarde speaking following the Eurogroup meeting as well.

Closing yields/10-Yr Spreads to Bunds:

• Germany: The 2-Yr yield is up 0.2bps at -0.645%, 5-Yr is up 0.6bps at -0.5%, 10-Yr is up 0.1bps at -0.109%, and 30-Yr is down 1bps at 0.437%.
• UK: The 2-Yr yield is down 2.6bps at 0.049%, 5-Yr is down 1.3bps at 0.361%, 10-Yr is down 0.9bps at 0.839%, and 30-Yr is down 0.7bps at 1.391%.
• Italian BTP spread down 6.1bps at 116.7bps/Spanish spread down 3.7bps at 68.1bps

OPTIONS/EUROPE SUMMARY: Blue Sep Sterling Put

Thursday's options flow included:

• RXM1 170.5/170ps sold at 49.5 in 4k
• RXN1 171.5/73/74.5c fly, bought for 17.5 in 3.5K
• RXN1 168.50/167.00ps 1x2, bought for 12 in 3k
• 2RH2 100.37/50cs vs 100.12/00ps, bought the cs for 0.25 in circa 4k
• 2RQ1 100.25/12/00p ladder with 3RQ1 100.12/00/87p ladder strip, bought for 1.75 in 2k
• 3RU1 100.12/25/37c fly, bought for 2.75 in 3k (ref 100.05-100.075)
• 3RZ1 99.75/99.62ps, sold at 1.75 in 7k
• 0LZ1 99.62/99.50/99.25 broken put ladder, bought for 2 in 4k
• 0LZ1 99.50/99.62/99.75c ladder, bought for 3 in 3k
• 2LU1 99.00p, sold at 2.25 in 12k

FOREX: Dollar Gradually Reverses Post FOMC-Minutes Strength

• A subdued session saw a consistent offered tone for the greenback. The US dollar gradually gave up all the gains made following the release of the FOMC minutes on Wednesday, with minor US data in the form of Philly Fed and Initial Jobless claims unable to spark any movement in FX markets.
• The Swiss franc and the Canadian dollar were the biggest beneficiaries on Thursday, advancing roughly 0.6%.
• Strength in US equities and a stabilisation of the cryptocurrency space left risk on a firmer footing. Most other G10 currencies strengthened roughly 0.4% in line with dollar index losses. CNH underperformed, rising just 0.08%. Emerging Market FX was also buoyant, with ZAR, TRY, RUB and MXN all in the green.
• USDCAD traded back to 1.2050, hovering roughly 40 pips above the most recent lows at 1.2013, representing the lowest levels since mid-2015. The immediate recovery for the Canadian dollar after a 1% squeeze in USDCAD enhances the likelihood of the bearish theme continuing. Markets will eye the weekly close below 1.2062, an important pivot chart point that either marks the base of a broad range or the midpoint of a double top reversal pattern.
• Attention turns to global flash PMI releases on Friday, as well as retail sales figures for Australia, the UK and Canada.

FX OPTIONS: Expiries for May21 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.2080(E869mln), $1.2140-50(E1.0bln-EUR puts), $1.2160-70(E1.3bln-EUR puts), $1.2200(E986mln-EUR puts)
• USD/JPY: Y108.45-60($1.1bln-USD puts), Y109.60-65($650mln-USD puts)
• GBP/USD: $1.4095-1.4100(Gbp477mln)
• USD/CHF: Chf0.9000-20($648mln-USD puts)
• AUD/USD: $0.7690-0.7700(A$1.15bln-AUD puts), $0.7750-65(A$523mln-AUD puts)
• USD/CAD: C$1.2150-55($507mln-USD puts)
• USD/MXN: Mxn19.90($980mln-USD puts);

EQUITIES

• DJIA up 244.35 points (0.72%) at 34141.06
• S&P E-Mini Future up 49 points (1.19%) at 4160.25
• Nasdaq up 238.4 points (1.8%) at 13538.02

• EuroStoxx 50 up 63.17 points (1.6%) at 3999.91
• FTSE 100 up 69.59 points (1%) at 7019.79
• German DAX up 256.7 points (1.7%) at 15370.26
• French CAC 40 up 81.03 points (1.29%) at 6343.58

COMMODITIES

• WTI Crude Oil (front-month) down $1.31 (-2.07%) at $62.05
• Gold is up $5.37 (0.29%) at $1874.90