MNI ASIA MARKETS ANALYSIS:Corporate Issuance Exacerbates FI Sale

US TSYS: High-Grade Issuance Surge, Tsy Auctions Weighed on Rates

Markets returned from extended holiday weekend to carry-over weakness in rates Tuesday -- no significant economic data or market moving headlines, but pressured by surge in corporate issuance, four US Tsy bill auctions and $58B 3Y note auction. Tsy auctions were anticipated, but the breadth and size of the corporate issuance spurred speculative selling to get ahead of rate lock hedging -- exacerbating the curve steepening sell-off.

• Over $30B high-grade corporate issuance issued Tuesday from a mix of 21 corporations, banks and supra-sovereigns (multi-tranche Nestle ($5B) and TD Bank ($4.5B) leading). Midday rebound off lows stalled as rate locks came back on as size of Nestle and TD Bank made the rounds.
• Tsys held weaker/off mid-morning lows after $58B 3Y note auction (91282CCX7) stops through: 0.447% high yield vs. 0.450% WI; 2.45x bid-to-cover steady w/5 auction avg. Indirect take-up remains strong at 56.67% vs. 55.41% last month, while direct bidder take-up climbs to new 1+ year high of 18.97%. Primary dealer take-up slips to 24.37% vs. Aug's 26.17% and well off 29.53% 5M average.
• Aside from deal and Tsy auction hedging, there was decent rolling of Sep MAC Swap futures (>65k) to Dec on CME Block cross facility.
• The 2-Yr yield is up 1.4bps at 0.2201%, 5-Yr is up 3.4bps at 0.8174%, 10-Yr is up 4.6bps at 1.3681%, and 30-Yr is up 4.1bps at 1.9833%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N +0.00213 at 0.07288% (+0.00213/wk)
• 1 Month +0.00013 to 0.08313% (+0.00025/wk)
• 3 Month +0.00137 to 0.11600% (+0.00050/wk) ** Record Low .11463% on 9/6/21
• 6 Month -0.00062 to 0.14813% (-0.00025/wk)
• 1 Year +0.00050 to 0.22000% (-0.00275/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $68B
• Daily Overnight Bank Funding Rate: 0.07% volume: $267B

• Secured Overnight Financing Rate (SOFR): 0.05%, $883B
• Broad General Collateral Rate (BGCR): 0.05%, $386B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $352B
• (rate, volume levels reflect prior session)

• Tsy 10Y-22.5Y, $1.401B accepted vs. $3.673B submission
• Next scheduled purchases:
• Wed 9/08 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B
• Thu 9/09 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
• Fri 09/10 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.425B

FED: REVERSE REPO OPERATION

NY Fed reverse repo usage climbs to 1,079.945B from 77 counter-parties vs. $1,074.707B last Friday. Record high holds at $1,189.616B set Tuesday, Aug 31.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• -10,000 Green Mar 98.37/99.25 call over risk reversals, 0.0 vs. 98.89/0.40%
• +5,000 short Dec 99.25/99.37/99.50 2x5x2 put flys, 1.25 wings over
• Block, 29,000 short Mar 99.12/99.37 put spds, 4.5 vs. 99.49/0.20%
• Overnight trade
• 4,500 Blue Sep 98.50/98.75 2x1 put spds

• 5,000 TYV 131.75/132.25 put spds, 5
• Block, +11,500 wk2 TY 132.25/132.75 put spds, 5
• -11,200 TYV 130.75/131.75/132.75 put flys, 11 vs. 133-00/0.13%
• Overnight trade
• 53,000 TYV 133.5/134 call spds, 11
• 13,500 TYV 131.5 puts, 4-5, mostly 5
• 13,400 TYV 132.5 puts
• 10,800 TYV 132 puts, 7-8

EGBs-GILTS: Issuance Pushes Yields To Multi-Month Highs

UK and German yields rose sharply Tuesday, with bear steepening in the curves as supply weighed. Periphery spreads widened slightly, with Italy underperforming.

• The main theme was supply: Spain syndicated its inaugural Green Obli (E5bln), Austria sold E1.6bln of 10-15Y and the UK sold GBP4.5bln of 4-/50Y. The EU announced its borrowing plan update.
• All the while, heavy US Treasury and Corporate issuance pushed 10Y Bund / Gilt yields to highest levels since July / June, respectively.
• BoE Saunders said rates could rise in the next 12 months; UK PM Johnson announced a 1.25% national insurance tax hike, though little market impact as was previously reported.
• German ZEW disappointed; Eurozone GDP was revised higher.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.7bps at -0.698%, 5-Yr is up 4.2bps at -0.63%, 10-Yr is up 4.5bps at -0.322%, and 30-Yr is up 3.4bps at 0.169%.
• UK: The 2-Yr yield is up 1.4bps at 0.192%, 5-Yr is up 2.3bps at 0.377%, 10-Yr is up 4.3bps at 0.737%, and 30-Yr is up 3.5bps at 1.075%.
• Italian BTP spread up 1.8bps at 107.5bps / Spanish up 0.6bps at 69.1bps

EGB OPTIONS: Mixed Directional Plays In German Bonds

Tuesday's European rates / bond options flow included:

• OEV 135.25/135.00 1x2 put spread bought for 1 in 2.5k
• RXV1 169.50 put bought for 9.5 in 4k
• RXV1 171.50 put sold at 3 in 2k
• RXX1 171.00/169.50 put spread bought for 37 in 7k
• RXV1 171.00/170.00/169.00 put fly bought for 13 in 6.4k
• DUV1 112.30/112.40 call spread vs 112.10 put bought for net 0.75 in 3k (bought cs/ sold put)
• DUV1 112.40/112.30 1x2 put spread sold at 3 in 4k
• ERM2 100.50 puts bought for 3.75 in 5k (33 delta, underlying 100.515)
• 3RX1 100.125/100.00 put spread bought for 1.75 in 5k

FOREX: Dollar Index Extends Bounce As US Yields Edge Higher

• The dollar remained underpinned throughout Tuesday's session as US markets returned from the Labor Day holiday.
• Both higher U.S. yields, combined with a softer tone for equities/commodities provided the USD with solid demand. The dollar index extended on Monday's gains, recovering from a poor streak culminating in a weak headline NFP print last Friday.
• The Canadian Dollar (-0.8%) was the weakest among G10 currencies with weaker risk sentiment and the higher greenback fuelling demand for USDCAD. In similar fashion, both AUD and NZD fell over half a percent.
• With EURUSD trading higher Friday on the weaker-than-forecast NFP release, the pair touched but failed to break key resistance at the Jul 30 high of 1.1909. This level remains a key hurdle for bulls. On the downside, the support to watch is 1.1735, Aug 27 low. A break would suggest the recent rally is over.
• EMFX was also on the backfoot given the elevated US yields and stronger US dollar, with the Chilean Peso (-1.00%) and the Turkish Lira (-0.78%) faring the worst.
• Tomorrow, markets will await the September Bank of Canada decision/statement. The BOC will likely try to avoid creating any political talking points less than two weeks ahead of the snap federal election on September 20.
• The domestic UK highlight of the week will be the Treasury Select Committee hearing tomorrow with MPC Governor Bailey and members Broadbent, Ramsden and Tenreyro all due to testify.
• Highlights in the U.S. will be July Jolts data and the Fed's Beige Book before markets prepare for the EBC statement/press conference on Thursday.

FOREX: Expiries for Sep08 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1785-00(E910mln)
• USD/JPY: Y109.55($620mln), Y110.00($781mln)
• AUD/USD: $0.7070(A$1.0bln), $0.7220(A$1.0bln), $0.7425(A$673mln)
• USD/CAD: C$1.2560-75($721mln), C$1.2600($547mln), C$1.2640($750mln)
• USD/CNY: Cny6.5540($500mln)

PIPELINE: Over $30B To Price Tuesday

Multi-tranche Nestle ($5B) and TD Bank ($4.5B) lead surge in corporate, bank and supra-sovereign issuance Tuesday -- over $30B while still waiting on RBC 5Y details.

• Date $MM Issuer (Priced *, Launch #)
• 09/07 $5B #Nestle 6pt: $1.5B 3NC2 +18a, $500M each: 5Y +35, 7Y +40, 10Y +50, 20Y +60, 30Y +68
• 09/07 $4.5B #TD Bank $1B 3Y +30, $900M 3Y FRN/SOFR, $1.4B 5Y +47, $300M 5Y FRN/SOFR, $900M 10Y +67
• 09/07 $Benchmark Royal Bank of Canada 5Y +18
• 09/07 $3B #Home Depot $1B each: 7Y +42, 10Y +57, 30Y +82
• 09/07 $2B #Caterpillar Financial $750M 3Y +22, $750M 3Y FRN/SOFR+27, $500M 5Y +37
• 09/07 $2B #ING $1B perp NC6 3.875%, $1B perp NC10 4.25%
• 09/07 $2B #Danske Bank $1B 4Y +55, $1B 6Y +73
• 09/07 $1.75B #American Honda $1B 3Y +35, $750M 5Y +50
• 09/07 $1.5B #GA Global Funding $500M each: 3Y+45, 3Y FRN/SOFR+50, 7Y+85
• 09/07 $1.5B *Waste Connections $650M 10Y +85, $850M 30Y +105
• 09/07 $1.5B Texas Inst 5Y +55a, 10Y +80a, 30Y +100a
• 09/07 $1.5B #Banco Santander 6NC5 +90
• 09/07 $1.35B #DCX Technology $700M 5Y +100, $650M 7Y +125
• 09/07 $1.25B *John Deere Capital $750M 2Y FRN/SOFR+12, $500M 3Y +22
• 09/07 $1B #Union Pacific $150M 2031 Tap +62.5, $850M 30Y+97
• 09/07 $1B *Enterprise Products WNG +31Y +137.5
• 09/07 $800M *DBS Group 5.5Y +37
• 09/07 $750M #Amphenol 10Y +87
• 09/07 $750M #Arche-Daniels-Midland 30Y +80
• 09/07 $700M #Packaging Corp WNG 30Y +110
• 09/07 $500M #Met Tower Funding 5Y +45
• 09/07 Investor calls: Walmart, CGI Inc, AvalonBay FI

EQUITIES: Stocks Roll Off Recent Highs as Risk Sours

• Despite the positive close across Asia-Pac markets, European markets started the session poorly and extended lower from there. Wall Street was similarly negative, pressing the S&P500 lower by between 0.5-1.0%.
• Real estate and industrials weighed on the headline S&P 500, with a steeper US Treasury curve working against those sensitive to the economic cycle. Financials traded defensively, with banks holding their ground throughout.
• The pullback in US equities worked in favour of the VIX, which extended the recovery off the September lows printed late last week at 15.7 points.
• Focus turns to the ECB decision Thursday, as well as any further progress in the rally across Treasury yields.

COMMODITIES: Oil, Metals Slip on Dollar, Yield Rally

• WTI and Brent crude futures traded lower into the Tuesday close, pressing the oil complex to fresh weekly lows. Price action worked in favour of the WTI-Brent spread, which widened by around $0.50/bbl.
• USD strength was the primary catalyst behind lower commodities, exposing first support in WTI at $67.12/bbl and $70.42/bbl for Brent crude.
• Gold was largely catching up with the firmer US dollar as well as the grind higher across Treasury yields following the re-opening of US trade after the extended weekend. Gold showed below $1800 support to slip to new weekly lows and expose the $1797.61 50-dma.