MNI ASIA MARKETS ANALYSIS: Tsy Yld Curves Back to Late Sep Lvls

US TSYS: Yld Curves Bull Flatten, Mkt Prices Rate Liftoff Sooner Than Expected

• Plausible driver: rate-hike expectations getting pushed forward as taper annc on schedule for November -- last Fri's NFP miss not enough to forestall Fed's hand. Keep in mind, as Clarida said earlier today, green light for taper does not mean green light for rate liftoff.
• Large Lead-Quarterly Eurodollar futures sale: -30,000 EDZ1 99.825 (-0.005) prior to latest comments from Fed VC Clarida (echoing Bostic earlier: Fri's Sep NFP miss does not derail taper annc in November).
• Tsy auctions, 3- and 10Y sales both stopped through:
  • Treasury futures holding gains after $58B 3Y note auction (91282CDB4) stopped-through: 0.635% high yield vs. 0.637% WI; 2.36x bid-to-cover vs. 2.46x 5-auction average.
  • Tsy futures continue to inch higher after $38B 10Y note auction re-open (91282CCS8) stops through with 1.584% high yield vs. 1.588% WI; 2.58x bid-to-cover on par with Sep's 2.59x but well above five auction avg: 2.53x.
• The 2-Yr yield is up 2.8bps at 0.3459%, 5-Yr is up 1.2bps at 1.071%, 10-Yr is down 3.7bps at 1.5751%, and 30-Yr is down 6.3bps at 2.1011%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N +0.00137 at 0.07400% (+0.00137/wk)
• 1 Month +0.00250 to 0.08788% (+0.00425/wk)
• 3 Month +0.00500 to 0.12575% (+0.00562/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.00063 to 0.15713% (+0.00063/wk)
• 1 Year +0.00475 to 0.26138% (+0.01438/wk)

• Tsys 10Y-22.5Y, $1.401B accepted vs. $4.108B submission
• Next scheduled purchases
• Wed 10/13 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
• Thu 10/14 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B
• Thu 10/14 1500ET: Update NY Fed Operational Purchase Schedule

FED Reverse Repo Operation

NY Fed reverse repo usage slips to $1,367.051B from 79 counterparties vs. $1.371.958B on Friday. Record high remains at $1,604.881B from Thursday, September 30.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• Block, 20,000 short Dec 99.25 puts, 2.0
• Block, 20,000 Green Dec 99.18 calls, 1.0
• +10,000 Green Oct 98.62/98.81 call over risk reversals0.0 vs. 98.72/0.20%
• +5,000 Red Dec 99.00/99.12/99.25/99.37 put condors, 2.0, 99.415 ref
• +10,000 Green Dec 99.25 calls, 1.0 vs. 98.76/0.05
• +10,000 Green Dec 98.37/98.50 put spds, 2.0
• 5,000 Green Oct 98.50/98.75 put spds
• -5,000 Gold Dec 97.87/98.12 put spds, 10
• -20,000 Green Nov 98.68/98.75 put spds, 3.0
• -1,500 Blue Dec 98.25/98.37 strangles, 22.0
• 20,000 short Dec 99.37 puts, 4.0 adds to block
• Overnight trade
• -9,000 Blue Dec 98.25/98.50 put spds, 13.5
• Block, 10,000 short Dec 99.37 puts, 4.0, EDZ2 99.425 ref
• Block, +5,000 Green Dec 98.31/98.43 put spds, 1.5
• Block, -5,400 Green Oct 98.50/98.75 put spds, 3.5
• Block, -8,240 Blue Oct 98.12/98.37 put spds, 6.0

• 5,000 USX 157 puts, 24
• 3,000 FVZ 122.75 calls
• Update, >+35,000 TYX 130 puts, 4-5
• Overnight trade
• +8,000 TYX 130 puts, 5
• +6,500 TYX TYX 130/130.5 put spds, 7.0 vs. 131-01.5/0.14%
• 2,500 TYX 130/132.5 risk reversal

EGBs-GILTS CASH CLOSE: Gilts Rally After BoE Operation

The German curve bear flattened but Gilts enjoyed flattening of the bull variety Tuesday, while periphery EGB spreads tightened.

• Supply was the theme of the morning, including the EU selling E12bln of 15-Yr Green bond via syndication (>E135bln books), and Dutch, Gilt and Schatz auctions.
• And in the afternoon, Gilts rallied following a low offer-to-cover at the BoE's long-dated APF operation (30Y yields fell 6bp from that point on).
• The US's return from a holiday Monday helped exacerbate global moves in the afternoon.
• Earlier, UK labor market data came in strong, on balance.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.9bps at -0.662%, 5-Yr is up 3.8bps at -0.465%, 10-Yr is up 3.5bps at -0.086%, and 30-Yr is up 1.9bps at 0.376%.
• UK: The 2-Yr yield is down 3.2bps at 0.563%, 5-Yr is down 3.1bps at 0.777%, 10-Yr is down 4bps at 1.148%, and 30-Yr is down 7.1bps at 1.448%.
• Italian BTP spread down 2.5bps at 101.2bps / Greek down 2.3bps at 102.4bps

EGBs: Shifting Rate Outlook Spurs Short Cover In Sterling Midcurve Calls

Tuesday's European rates / bonds options flow included:

• RXZ1 166.5/170.5^^ , sold at 79 in 1.25k
• OEZ1 134.50/135.00cs 1x2, bought for 3.5 and 4 in 2k
• 0RF2 100.25/100.00ps 1x1.5, bought for 2 in 5k
• 0RH2 100.37c, sold at 3.75 in 10k (ref 100.325)
• 2RH2 100/99.75/99.50/99.25 put condor bought for 3.25 in 2k
• 3RZ1 100.12/99.87ps sold at 11.25 in 5k
• 2LZ1 99.37c, bought for 0.75 in 30k (possibly a short cover)
• SFIH2 99.55/99.65/99.75c fly, bought for 1.5 in 2k
• SFIH2 99.35/99.15ps 1x2, bought for 0.75 in 4k

FOREX: JPY Weaker for Fourth Consecutive Session

• For a second session, JPY was comfortably the poorest performer with markets looking to secure a close north of the key downtrendline drawn off the December 1975 high at 113.41. This marks the 11th session in the past 15 in which USD/JPY has closed higher. This opens gains for USD/JPY toward levels not seen since late 2018, with 114.55 the medium-term upside target.
• Growth proxy and high beta currencies led the way higher, with CAD, AUD and NOK among the firmest in G10. Weakness in the single currency keeps EUR/USD within range of the YTD lows printed on Oct 6th at 1.1529. This level marks the bear trigger and a break below would expose losses toward 1.1493, the 50% retracement of the Mar'20 - Jan'21 bull phase.
• Focus Wednesday turns to the unofficial beginning of the quarterly earnings cycle, with JPMorgan and Blackrock both due. US CPI is the data highlight, with prices expected to have risen by 0.3% on the month, keeping the annual pace a 5.3%. The Fed minutes also cross, with markets watching for any considerations of a November taper of asset purchases.

FOREX: Expiries for Oct13 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1500-15(E574mln), $1.1550-60(E703mln)
• EUR/GBP: Gbp0.8510-25(E1.2bln)
• USD/JPY: Y113.00($555mln)
• USD/CAD: C$1.2660-70($778mln)
• USD/CNY: Cny6.4200($1bln), Cny6.4500($1bln), Cny6.4800($1.3bln)

PIPELINE: CIBC 3Y Launched Late; KFW, DBJ Expected Wednesday

• Date $MM Issuer (Priced *, Launch #
• 10/12 $2.75B #BPCE $750M 6NC5 +155, $1B 11NC10 +98, $1B 21NC20 +155
• 10/12 $2.25B #General Motors $850M 3Y +60, $400M 3Y FRN/SOFR+62, $1B 7Y +105
• 10/12 $1B #Export/Import Bank of Korea (Kexim) 7Y Green +35
• 10/12 $1.35B #CIBC $650M 3Y +40, $700M 3Y FRN/SOFR+42
• Expected Wednesday:
• 10/12 $3B KFW WNG 5Y Green +21a
• 10/12 $Benchmark Development Bank of Japan (DBJ) 5Y +16a, 10Y +28a

EQUITIES: Stocks Just Above Water as 50-dma Remains Out of Reach

• US equity futures traded in minor positive territory into the close, with the e-mini S&P rebounding around 40 points of so off the overnight lows. This keeps the index trading either side of the 100-dma at 4357.3, which has anchored the index for close to two weeks.
• Weakness across the likes of communication services, healthcare sectors countered strength in real estate and consumer discretionary, leaving headline indices broadly unchanged.
• Markets appear to be adopting a more neutral tone ahead of the key earnings cycle which begins in earnest on Wednesday. Blackrock and JPMorgan Chase will be in focus, with markets looking to gauge the extent to which bank profits are benefiting from a steeper yield curve that should flatter margins.
• Across Europe, performance was mixed, with losses for the EuroStoxx50 and CAC-40 running against gains for Italian and Spanish indices.

COMMODITIES: Crude Finishes Mixed, But Still North of $80/bbl

• WTI and Brent crude futures traded inside the week's range, but importantly WTI held north of $80/bbl. This keeps the bullish case intact as markets continue to position for tighter winter supply in the coming months.
• This week's gains confirm an extension of the current bullish price sequence of higher highs and higher lows, reinforcing the uptrend. Note that the $80.00 psychological hurdle has also been cleared. The focus is on $81.60, a Fibonacci projection.
• Gold traded higher Friday but failed to hold onto gains and continues to consolidate. Near-term attention is on the 50-day EMA at $1777.0 and $1787.4,Sep 22 high and a key resistance.
• A resumption of strength would reinforce the bullish engulfing candle that signalled a reversal on Sep 30 and a break of $1787.4 would suggest scope for further upside.