MNI ASIA MARKETS ANALYSIS: Eq's At New Highs; Yld Curves Flatter

US TSYS: Decent 2Y Note Sale Acceptance of Two Rate Hikes in 2022

• Tsys extended session lows after better than expected New Home sales for August surged +14% to 800k; Consumer confidence climbed 113.8 vs. 109.8 in Sep.
• Weakness short lived as rates climbed steadily off post-data lows to session highs midway through the second half. Contributing factors for bounce and renewed curve flattening: Block/buy 7.5k FVZ1 at 121-21.5; Block 2s10s flattener: -13,573 TUZ1 109-21.25 vs. +6,977 TYZ1 130-16.5.
• Tsy futures holding near top of session range/mixed with 2s and 5s still mildly weaker after $60B 2Y note auction's (91282CDD0) small stop with 0.481% high yield vs. 0.482% WI; 2.69x bid-to-cover bounce vs Sep's 2.28x (lowest since 2008) well over five auction avg: 2.54x. Decent performance a sign of acceptance of two rate hikes next year one desk posited.
• Equities made new all-time highs (ESZ1 4590.0) after headlines made the rounds the global chip shortage may have crested. US$ posted strong gain as well, DXY +.136 to 93.949 late.
• By the bell, 2-Yr yield is up 1.3bps at 0.4478%, 5-Yr is up 0.8bps at 1.1795%, 10-Yr is down 1.4bps at 1.6167%, and 30-Yr is down 3.2bps at 2.0492%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N +0.00013 at 0.07163% (-0.00188/wk)
• 1 Month -0.00075 to 0.08700% (-0.00088/wk)
• 3 Month +0.00138 to 0.13588% (+0.01100/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month -0.00163 to 0.17625% (+0.00425/wk)
• 1 Year -0.00663 to 0.32275% (+0.00588/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $78B
• Daily Overnight Bank Funding Rate: 0.07% volume: $286B

• Secured Overnight Financing Rate (SOFR): 0.04%, $858B
• Broad General Collateral Rate (BGCR): 0.05%, $353B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $329B
• (rate, volume levels reflect prior session)

• TIPS 7.5Y-30Y, $1.199B accepted vs. $1.691B submission
• Next scheduled purchases
• Wed 10/27 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B
• Thu 10/28 1010-1030ET: Tsy 0Y-2.25Y, appr $12.425B
• Fri 10/29 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B

FED Reverse Repo Operation, Inching Higher

NY Fed reverse repo usage climbs to $1,423.198B from 84 counterparties from $1,413.188B on Monday. Record high remains at $1,604.881B from Thursday, September 30.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• +5,000 Jun 99.37/99.50/99.62 put trees, 1.25
• +5,000 short Nov 99.50 calls, 0.5 vs. 99.24/0.05%
• Overnight trade
• +10,000 short Dec 99.37 calls, 1.5
• +5,000 short Dec 99.25 calls, 6.5 vs. 99.18/0.45%
• -3,800 short Dec 99.25/99.37 put spds, 4.5
• 2,500 Green Mar 98.62/98.75 put spds

• -4,000 TUZ 110 puts, 21
• 14,000 TYZ 129.5 puts, 18
• Overnight trade
• -10,500 TYZ 131.5 calls, 17
• 12,250 TYZ 135.5 calls, 1
• Block, -10,000 TYZ 129.5 puts, 18, another 2,500 on screen from 19
• +10,000 wk1/wk2 TY 129 put spd, 3

EGBs-GILTS CASH CLOSE: BTPs Reverse

The UK and German curves flattened Tuesday with modest UK outperformance, while periphery spreads widened across the board.

• BTPs underperformed, reversing Tuesday's gains.
• Portugal 10Y spreads also widened amid risks of early elections should the 2022 budget be voted down Wednesday, but the short end rallied on the IGCP announcing a bond exchange tomorrow.
• Little data out today; Spanish factory gate inflation came in at the highest since 1977, while last week, the ECB made the most net asset purchases since mid-July.
• Focus remains on the ECB meeting Thursday (our preview went out Monday), and the BoE next week. UK Budget also of note Wednesday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.6bps at -0.658%, 5-Yr is up 1.1bps at -0.441%, 10-Yr is down 0.3bps at -0.117%, and 30-Yr is down 2.5bps at 0.244%.
• UK: The 2-Yr yield is down 2.1bps at 0.626%, 5-Yr is down 2bps at 0.8%, 10-Yr is down 3bps at 1.11%, and 30-Yr is down 4.2bps at 1.316%.
• Italian BTP spread up 3.4bps at 111.3bps / Portuguese up 2.9bps at 53.3bps

EGB Options: Bobl Upside Features

Tuesday's Europe rates/bond options flow included:

• OEZ1 135c, bought from 12 up to 13 in 8k
• OEZ1 134.5/135/135.5/136c condor, bought for 14.5 in 12.5k VS 133.75/25ps, sold at 11 in 12.5k (package traded 3.5)
• RXZ1 167/165/164 broken put fly bought for 23 in 2k
• SFIZ1 (SONIA) 99.60/99.70/99.80c fly, bought for 2.25 in 3k

FOREX: USDJPY Creeps Back Above 114.00 As Greenback Holds Narrow Range

• Weakness in the Japanese Yen was the main feature of Tuesday's trading session, comfortably the weakest currency among its G10 counterparts.
• USDJPY edged higher throughout Tuesday, regaining the 114 handle with recent price dips continuing to be considered as corrective and a bullish trend remaining intact. Strong overall sentiment helped AUDJPY lead the way, rising 0.55%.
• GBP had a fairly volatile session following EURGBP breaking to the lowest levels since February 2020 at 0.8403. This coincided with supportive price action in cable, reaching 1.3830 before a strong bid in the dollar prompted a sharp reversal back to unchanged on the day around 1.3765.
• The strong bid in the greenback throughout the US session will likely mean a second consecutive day of gains for the dollar index, albeit with limited ranges overall.
• Australian CPI will be released overnight before the US reports Durable Goods data. The Bank of Canada headlines the latter half of Wednesday's docket. The ECB will meet on Thursday.

FX: Expiries for Oct27 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1490-00(E834mln), $1.1600-15(E2.2bln), $1.1685-00(E1.2bln)
• USD/JPY: Y113.50-60($2.0bln), Y114.45-50($905mln)
• EUR/GBP: Gbp0.8515-25(E701mln)
• AUD/USD: $0.7400($1.3bln), $0.7500(A$697mln), $0.7530(A$606mln)
• USD/CNY: Cny6.4000($543mln)

PIPELINE: Corporate Debt Recap, World Bank Exp Wednesday

• Date $MM Issuer (Priced *, Launch #)
• 10/26 $1.5B #Royal Bank of Canada 10Y +70
• 10/26 $1B Roblox 8.5NC3
• 10/26 $1B *EAA 3Y SOFR+17
• 10/26 $800M #Kinder Morgan $500M 5Y +60, $300M 2051 Tap +150
• 10/26 $750M #Ally Financial 7Y +95
• 10/26 $500M #New York Life 2024 FA backed +18
• Reverse Yankees priced earlier (both upsized slightly since initial guidance):
• 10/26 E1.75B *Morgan Stanley, 11.5NC10.5 +82
• 10/26 E1.1B *Proctor & Gamble, E500M 8.5Y +17, E600M 20Y +40
• Expected to launch Wednesday:
• 10/27 $Benchmark World Bank (IBRD) 10Y +9a

EQUITIES: Earnings Drive Indices to Fresh Highs

• Wall Street indices were driven to fresh highs Tuesday, with a series of expectations-beating earnings releases helping drive headlines higher. The e-mini S&P touched 4590 at the high, before prices faded somewhat following the opening bell.
• Utilities and healthcare names drove markets from the off, with just communication services and consumer discretionary sectors adding a headwind. A gap higher for Facebook shares at the open faded sharply ahead of the close, with the stock dropping as much as 5% and prompting tech names to underperform.
• European markets traded similarly positively, with the Stoxx600 narrowing in on - but not quite breaking - the earlier 2021 highs of 476.162.
• Focus remains on earnings, with Coca-Cola, McDonald's, Boeing, Bristol Myers-Squibb, General Motors and Ford on the docket. Full schedule including timings and estimates found here: https://marketnews.com/mni-us-earnings-schedule-bu...

COMMODITIES: WTI Remains Bullish, on Track for Cycle High Close

• WTI and Brent crude futures recovered off the overnight low to head into the Tuesday close in positive territory, allowing the underlying trend to stay bullish for now. WTI failed to break to a new cycle high (that remains at yesterday's $85.41) but remains on course for a new cycle high close.
• Focus turns to Wednesday's DoE inventories release, with markets expecting a build of 1.4mln bbls, while both gasoline and distillates are expected to see draws of over 2mln bbls apiece.
• Gold came under some pressure alongside the US open, with spot prices slipping back below the $1,800 handle to expose first support at the 50-day EMA of $1776.1. Recent weakness works against the positive short-term tone after gold cleared resistance at $1800.6, Oct 14 high. A break of $1760.4, the Oct 18 low would alter the picture and suggest scope for a deeper pullback.