MNI ASIA MARKETS ANALYSIS: Bond Ylds Near Mid-Yr High, Risk-On?

US TSYS: Risk-On Ahead Data Risk

Historical correlation between stocks and Treasuries may be short lived, but enjoy the risk-on while it lasts. Throwing caution to the wind ahead Friday's headline Sep employment report (+450k est) and Wed's ADP private jobs data (+430k est), rates sold off sharply Tuesday as equities, still off Sep 9 all-time high of 4538.25 gained 60.0 points to 4351.25.

• Aside from worrying knock-on inflation (nat-gas climbing to appr 12Y highs), why not? If job gains come in 100k either side of the mean estimate, all is good with markets expecting a taper annc from the Fed at the Nov meeting and rate takeoff sometime later in 2022.
• But a significant miss as estimated by StL Fed economist Max Dvorkin would certainly push normalization plans down the road. MNI's interview of Dvorkin from latst Thursday continues to make the rounds. Excerpt:
  • U.S. hiring in September "could be weak or even negative" in September, according to a St. Louis Fed analysis of real-time employment data from the scheduling software company Homebase, showing a seasonally-adjusted decline of 818,000 jobs, a St. Louis Fed economist told MNI.
  • The model forecasts changes in employment as measured by the BLS's household survey, which tracks closely the headline payrolls figures from the BLS's establishment survey. A smaller drop of 500,000 jobs was forecast by the model without seasonal adjustment, the worst since January.
• By the close, 2-Yr yield is up 0.8bps at 0.2856%, 5-Yr is up 3.1bps at 0.9748%, 10-Yr is up 4.5bps at 1.524%, and 30-Yr is up 5bps at 2.0939%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00262 at 0.06988% (-0.00450/wk)
• 1 Month +0.00787 to 0.08575% (+0.01050/wk)
• 3 Month -0.00263 to 0.12400% (-0.00913/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month -0.00037 to 0.15513% (-0.00188/wk)
• 1 Year +0.00488 to 0.23688% (+0.00200/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $73B
• Daily Overnight Bank Funding Rate: 0.07% volume: $261B

• Secured Overnight Financing Rate (SOFR): 0.05%, $925B
• Broad General Collateral Rate (BGCR): 0.05%, $368B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $343B
• (rate, volume levels reflect prior session)

• Tsy 7Y-10Y, $3.201B accepted vs. $7.622B submission
• Next scheduled purchases
• Wed 10/06 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B
• Thu 10/07 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
• Fri 10/08 1010-1030ET: Tsy 0Y-2.25Y, appr $12.425B

FED Reverse Repo Operation, Second Highest on Record

NY Fed reverse repo usage climbs to $1,431.180B from 80 counterparties vs. Monday's $1.399.173B. Compares to Thursday, September 30 record high of $1,604.881B.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• -5,000 Green Oct 98.87 puts, 4.5 vs. 98.905/0.10%
• +2,500 Green Dec 98.50/98.62/98.75/98.88 put condors w/
• +2,500 Blue Dec 98.00/98.12/98.25/98.37 put condor w/
• +2,500 Gold Dec 97.75/97.87/98.00/98.12 put condor strip, 8.5 total/package
• +25,000 Green Nov 99.18 calls 1.0 vs. 98.895/0.10%
• +5,000 Green Dec 98.43/98.68/98.75 put trees, 0.25
• Overnight trade
• 6,250 Green Oct 98.87 puts, 4.0
• 2,500 Blue Dec 97.75/98.12 put spds vs. Blue Dec 98.50/98.62 call spds
• 2,300 short Oct 99.12/99.50/99.62 broken put trees

• +11,500 wk2 TY 132.5/132.75/133 call strips, 13 total vs. 131-22.5/0.42%
• +11,000 TYX 130.25 puts, 6 ref 131-21
• Overnight trade
• +11,000 TYZ 130/132 put spds, 41 vs. 131-28.5/0.32%
• +4,000 TYZ 130/131 put spds, 16
• +3,300 TYZ 133/134.5 call spds, 18
• 10,000 wk3 TY 131/131.5 put spds

EGBs-GILTS CASH CLOSE: Gilt Yields Soar

Gilt yields hit the highest since May 2019, underperforming Bunds once again amid a broader global FI bear steepening move. Periphery spreads were steady.

• The UK move didn't come on an obvious catalyst. Though soaring gas prices continued to make headlines, GBP outperformed EUR, unlike last week. 10Y Breakevens hit the highest level since 1998 though (3.982%), so perhaps inflation fears have something to do with it.
• ECB's Holzmann earlier stated that he was clinging to the hope that the inflation spike is temporary.
• In data, September Spanish and Italian service PMIs disappointed.
• In supply: UK sold GBP5.5bln in Gilts, Germany E0.5bln in linkers, Austria E1.1bln of RAGB.

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 1.9bps at -0.555%, 10-Yr is up 2.6bps at -0.188%, and 30-Yr is up 2.3bps at 0.291%.
• UK: The 2-Yr yield is up 4.5bps at 0.451%, 5-Yr is up 5.2bps at 0.681%, 10-Yr is up 7bps at 1.081%, and 30-Yr is up 6.7bps at 1.446%.
• Italian BTP spread up 0.2bps at 104.6bps / Spanish down 0.4bps at 64.6bps

EGB Options: Rolling In Germany

Tuesday's European rates / bond options flow included:

• RXX1 169/168/167.5 broken put fly, bought for 10 in 5k
• RXX1/RXZ1 172.5/173.5cs calendar, bought the Dec for 12 in 7.5k vs RXX1/RXZ1 169.5/168.5ps, vs. Dec at 9 in 1.25k
• OEX1/OEZ1 135.50/136.00/136.50 1X3X2 call fly roll (bought Dec), paying 0.5 in 2.5k
• DUZ1 112.20/112.10ps 1x2.5, bought for -0.5 in 3k

FOREX: Equities Bounce Boosts Cross/JPY, EURNOK To Fresh Yearly Lows

• A more buoyant session for equity markets/risk kept the Japanese Yen under pressure with USDJPY rising the best part of half a percent and slightly larger moves higher in the likes of AUDJPY and CADJPY.
• USDJPY confirmed the resumption of the bull cycle last week that started Jan 6, opening the potential for 112.23 next, Feb 20, 2020 high.
• Further moves higher in crude futures kept supporting the NOK, with EURNOK breaking to the lowest levels since January 2020. A break of the yearly lows through 9.90 may attract attention with the 2020 lows around 9.81 next on the support list.
• Broad dollar indices maintained very narrow ranges on Tuesday with EURUSD content trading blows either side of the 1.1600 mark. Markets had little reaction to an upside surprise in US ISM services print and may remain treading water as the focus turns to the September NFP report, due on Friday.
• Overnight we have the RBNZ rate decision and statement where the central bank are widely expected to raise the key rate by 25 bps. Elsewhere, German Factory orders and US ADP will be released on Wednesday.

FOREX: Expiries for Oct06 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1615-25(E622mln)
• GBP/USD: $1.3835-55(Gbp663mln)
• AUD/USD: $0.7300(A$671mln)
• NZD/USD: $0.7000(N$2.2bln)
• USD/CAD: C$1.2550-60(C$1.6bln), C$1.2600($868mln), C$1.2720-30($1.2bln)

PIPELINE: $3B MUFG Leads

• Date $MM Issuer (Priced *, Launch #)
• 10/05 $3B #MUFG $1B 4NC3 +45, $1.25B 6NC5 +67, $750M 11NC10 +97
• 10/05 $1.25B (upsized from $1B) #Williams Cos 10Y $600M +95, $650M 30Y +142
• 10/05 $1B #Jefferies Group 10Y +120
• 10/05 $1B #Nationwide 5Y +60
• 10/05 $1B #Autodesk 10Y +90
• 10/05 $500M *KFW 2024 tap FRN/SOFR+10
• 10/05 $500M #General Mills 10Y +73
• Expected Wednesday:
• 10/06 $1B Ontario WNG 10Y +31a

EQUITIES: Stocks Bounce, But Shy of Resistance

• Stocks bounced Tuesday, with Wall Street adding over a 1% for all the three main indices as equities staged a shallow recovery. Strength was seen from the opening bell onwards, with the e-mini S&P extending the recovery off the overnight lows to over 85 points. The Friday/Monday highs are next up at 4365.75/4362.00, marking first resistance. The move higher in stock markets coincided with a grind higher across Treasury yields (10y yields hit the best levels of the week) as well as USD/JPY, which briefly topped 111.50.
• Energy and financials were the initial gainers on Wall Street, with solid oil prices buoying refiners and explorers, while the steeper US curve favoured bank names.
• These sectors were swiftly usurped by tech and communication services however, with a sharp rally off the lows in the likes of Facebook and Twitter largely responsible. This put the NASDAQ-100 ahead of bluechip S&P500 and Dow Jones indices.

COMMODITIES: Oil Adds to Recent Gains, WTI Narrows in on $80

• WTI and Brent crude futures added to the week's gains Tuesday, inching higher across US hours to touch fresh cycle highs. The moves follow OPEC+'s decision to keep output policy unchanged on Monday, signalling to markets that the group will tolerate restricted output in return for higher prices.
• The break higher this week confirms an extension of the current bullish price sequence of higher highs and higher lows and attention turns to $79.53 for WTI, a Fibonacci projection and the $80.00 psychological hurdle.
• Unlike energy products, gold and silver are in negative territory, with gold edging off Monday's highs as equities bounce off the lower levels of the week. A break of $1721.7, Sep 29 low would confirm a resumption of weakness and open key support at $1690.6, Aug 9 low. A late rally in the yellow metal was insufficient to turn the outlook more positive.