MNI ASIA MARKETS ANALYSIS: Pricing Taper Annc in November

US TSYS: Tsy Support Breached, November Taper Announcement Back on

Tsys weaker but off midmorning lows by the closing bell. Following German Bund lead initially, sell-off in Tsys continued, 10Y futures falling through a couple levels of technical support:

• Dec 10Y fell to new session low of 132-20.5 (-14.5), next support 132-12 -- 0.764 projection of the Aug 4/11/17 price swing. Break reinforces a bearish theme and suggests potential for a deeper sell-off. A resumption of weakness would open 132-12, a Fibonacci projection. Next support if sell-off really accelerates: 131-27+ 1.00 proj of the Aug 4 - 11 - 17 price swing.
• Moderate volumes, TYZ>1.29M, position adjustments ahead next week's FOMC (dealers talking up November taper announcement), tight stops triggered, option and incoming Tsy supply selling added to move.
• Eurodollar highlight: >+50,000 EDZ4 (Blue Dec'24) 98.535 helped future lead volume across the strip at just over 200k (adds to Wed's +40,000 EDZ4 from 98.61 to .615).
• Likely unwinding short leg of over 50,000 Green/Blue Dec spds bought/blocked on June 22 at .435 (smaller around .385 this week). Additional EDZ'4 associated spds include EDZ2/EDZ4 bought in good size at 1.185 around the June FOMC -- a recommendation by Morgan Stanley trading desks say, that collapsed to around 1.050 (an re-recommended as a buy).
• Large 10Y options flows ahead next week's October option expiration noted.
• By the close the 2-Yr yield is up 0.4bps at 0.2237%, 5-Yr is up 2.4bps at 0.8648%, 10-Yr is up 3.1bps at 1.3684%, and 30-Yr is up 2.5bps at 1.9084%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00350 at 0.07075% (-0.00088/wk)
• 1 Month -0.00388 to 0.08350% (-0.00038/wk)
• 3 Month +0.00188 to 0.12388% (+0.00813/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.00275 to 0.15225% (+0.00288/wk)
• 1 Year +0.00013 to 0.22438% (+0.00188/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $66B
• Daily Overnight Bank Funding Rate: 0.07% volume: $256B

• Secured Overnight Financing Rate (SOFR): 0.05%, $905B
• Broad General Collateral Rate (BGCR): 0.05%, $387B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $367B
• (rate, volume levels reflect prior session)

• TIPS 1Y-7.5Y, $2.001B accepted vs. $6.204B submission
• Next scheduled purchases
• Mon 9/20 1010-1030ET: Tsy 7Y-10Y, appr $3.225B
• Tue 9/21 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
• Wed 9/22 No buy operation scheduled due to FOMC
• Thu 9/23 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B
• Fri 9/24 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B

FED: Reverse Repo Operation, New Record High

NY Fed reverse repo usage climb to new record high of 1,218.303B from 79 counter-parties vs. $1,147.494B Thursday. Prior record high was $1,189.616B set Tuesday, Aug 31.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• +12,000 short Nov 99.56/99.62/99.68 call flys, 1.5
• 5,000 Blue Dec 98.25/98.50 2x1 put spds
• 10,000 short Nov 99.56/99.62/99.68 call flys
• Overnight trade
• Block, 5,330 Blue Dec 99.00 calls, 2.0
• 2,000 Green Dec 99.62 calls, 0.5

• 1,500 FVX 123/123.25 3x2 put spds
• Block, -17,716 TYZ 131 puts, 23 vs. 132-25/0.24%
• 3,000 FVV 122.75/123.75 strangles
• +5,000 TYV 132/132.5 2x1 put spds, 3
• Update, over 110,000 TYV 133.5/134 call spds sold, 3-2, unwinding >+100k at 10 from last week
• Block, 25,000 FVV 123/123.25 2x1 put spds, 3.5 another 6k on screen
• +50,000 FVX 123 puts, 17.5
• 20,000 TYV 132 puts, 8
• 16,000 TYV 131.5 puts, 3
• Update, over 30,000 TYV 134 calls, 2
• Overnight trade
• +5,000 TYV 134/134.5 call spds, 2 vs. 133-00.5/0.05%
  
• 2,000 TYV 131/132 2x1 put spds
• 2,800 TYV 134 calls, 3
• 1,500 TYX 132.5/133.5 2x1 put spds, 3

EGBs-GILTS CASH CLOSE: Poor Close To The Week

European bonds lost further ground entering the weekend, with Gilts underperforming but bear steepening across the curves. Peripheral spreads traded mixed, with Italy underperforming.

• 10Y Bund yields rose to the highest levels since early July. Losses extended on technical breaks in the future, with longs appearing to exit.
• A variety of catalysts at play, with much of the session's focus on an FT report saying that ECB chief econ Lane told analysts that the bank expects to reach the 2% inflation target by 2025.
• The ECB denied the report, and meanwhile ECB speakers including Kazaks and Makhlouf spoke on upside inflation risks.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.8bps at -0.695%, 5-Yr is up 1.4bps at -0.607%, 10-Yr is up 2.2bps at -0.28%, and 30-Yr is up 2.2bps at 0.217%.
• UK: The 2-Yr yield is up 0.4bps at 0.289%, 5-Yr is up 1.6bps at 0.506%, 10-Yr is up 2.9bps at 0.846%, and 30-Yr is up 3.4bps at 1.152%.
• Italian BTP spread up 0.8bps at 100.4bps / Spanish down 0.6bps at 63.5bps

EGB Options: SONIA Dove Strikes Again

Friday's European bond / rates options flow included:

• RXX1 169.5/167.5/166 broken put fly, bought for 20 in 1.5
• 0RH2 100.62/100.75cs 1x2, bought for 0.25 in 1k
• SFIH2 99.90/99.95/100c fly bought for 1 in 10k - Looking at NO hike in first quarter of 2022. ~85k bought since Wednesday
• 0LZ1 99.50/99.62cs vs 99.25p, bought the cs for -1.5 (receives) in 8k.
• 3LZ1 99.00/98.75/98.50p fly bought for 4 in 10k
• 3LZ1 98.875/98.75/98.625/98.50p condor bought for 1.75 in 10k

FOREX: US Dollar Cements Strong Weekly Gain, DXY At Three-Week Highs

• The greenback consolidated most of Thursday's advance throughout early trade on Friday before extending during US hours.
• The dollar index looks set to close around 0.3% higher on the session, tallying weekly gains of 0.7% and rising to three-week highs for the index.
• Dollar gains were broad based amid higher US yields, however, with weakness in both equity indices and broad commodities, NZD and CAD and NOK were notable underperformers, all retreating over 0.5%.
• EURUSD continued its bearish trend with Thursday's sell-off confirming a resumption of bearish technical pressure. This narrows the gap with key support at 1.1664, the Aug 20 low, a break of which would strengthen a medium-term bearish case.
• As previously noted, USDCHF broke the July highs of 0.9275 and the downtrend from the 2020 high which has resulted in the pair trading at the best levels since April. The break has prompted a strong move to the initial target of 0.9330, the 50% retracement of the 2020 High – 2021 Low price swing.
• Market focus will be firmly on the FOMC decision/statement on Wednesday next week. Other notable central bank meetings include the Bank of Japan, Swiss National Bank and the Bank of England.

PIPELINE: Over $65B High-Grade Debt Issued on Wk

• Date $MM Issuer (Priced *, Launch #)
• 09/17 No new $Benchmark issuance on tap as yet
• $7.36B Priced Thursday, $65.71B/wk
• 09/16 $6.16B *Industrial and Commercial Bank of China (ICBC) Undated NC5 AT1 Capital bonds 3.2%
• 09/16 $600M *Hartford Financial WNG 30Y +107
• 09/16 $600M *Indonesia's BNI PerpNC5.5 4.3%

EQUITIES: 

• DJIA down 168.71 points (-0.49%) at 34585.4
• S&P E-Mini Future down 41 points (-0.92%) at 4423.75
• Nasdaq down 156.8 points (-1%) at 15026.12

COMMODITIES: 

• WTI Crude Oil (front-month) down $0.59 (-0.81%) at $72.03
• Gold is down $0.52 (-0.03%) at $1753.25