MNI ASIA MARKETS ANALYSIS: Bond Yields Back to Late Nov Lvls

US TSYS: Bond Yields Back to Late Nov Levels

• Tsys gapped lower on the open, rebounded on air ahead the Nov adv goods trade deficit ($97.8B), wholesale inv +1.2 %, retail +2.0%.
• Modest bounce off session lows on Block buy of 2,000 WNH2 194-26, well through the 194-21 post time offer at 0947:31ET. Renewed selling in TYH2 after 130-07.5 first support breached, 130-03 low. Sell-off coincided with round of selling in equities after ESH2 made new ATH Tue: 4797.0.
• Tsy futures extend session lows after final coupon sale of 2021 trades weak: $56B 7Y note auction (91282CDP3): 1.480% high yield vs. 1.457% WI; 2.21x bid-to-cover lowest since Feb (five auction avg: 2.30x). Indirect take-up 59.25% vs. Nov's 59.29%
• Thursday last full session of 2021, data on tap:
  • 0830 Jobless Claims (205k, 207k)
  • 0830 Continuing Claims (1.859M, 1.875M)
  • 0945 MNI Chicago PMI (61.8, 62.0)
• US Pres Biden, Russia Pres Putin to hold telephone talks Thursday over Ukraine tensions, no set time.
• The 2-Yr yield is down 0.2bps at 0.748%, 5-Yr is up 4.6bps at 1.2905%, 10-Yr is up 5.7bps at 1.5375%, and 30-Yr is up 4.9bps at 1.9491%.

SHORT TERM RATES

US DOLLAR LIBOR: Settlements resume

• O/N +0.00300 at 0.07275% (-0.00450 total last wk)
• 1 Month +0.00300 to 0.10425% (-0.00125 total last wk)
• 3 Month +0.00588 to 0.22375% (+0.00525 total last wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.01113 to 0.35438% (+0.03050 total last wk)
• 1 Year +0.01887 to 0.58600% (+0.03750 total last wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $72B
• Daily Overnight Bank Funding Rate: 0.07% volume: $247B

• Secured Overnight Financing Rate (SOFR): 0.04%, $844B
• Broad General Collateral Rate (BGCR): 0.05%, $328B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $315B
• (rate, volume levels reflect prior session)

• NY Fed buy-operations pause for holidays, resume Jan 3:
• Mon 01/03 1010-1030ET: Tsy 2.25Y-4.5Y, appr $6.325B vs. $7.375B prior
• Tue 01/04 1100-1120ET: TIPS 1Y-7.5Y, appr $1.525B
• Wed 01/05 1010-1030ET: Tsy 7Y-10Y, appr $2.425B vs. $2.825B prior
• Wed 01/05 1100-1120ET: Tsy 22.5Y-30Y, appr $1.825B
• Thu 01/06 1100-1120ET: TIPS 7.5Y-30Y, appr $0.925B
• Fri 01/07 1010-1030ET: Tsy 0Y-2.25Y, appr $9.325B

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $1,642.506B from 84 counterparties vs. $1,637.064B Tuesday. Record high of $1,758.041B posted Monday, December 20.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• -4,000 Sep 99.50/99.75 put spds, 20.75
• +10,000 Mar 99.56/99.68 2x1 put spds, 3.75
• Seller short Jan 98.31/98.37/98.50/98.62 broken put condor, 1.5
• -10,000 short Jun 98.62 straddles 48.0 (-3k), balance at 47.5
• +1,000 Blue Mar 97.50/97.75 put spds, 1.5 vs. 98.285/0.10%
• Overnight trade
• +5,000 Sep 98.37/98.50/98.75 put flys, 2.5
• 8,000 Sep 98.50 puts

• +3,800 FVG 120.5 puts, 14.5-15.5
• 5,000 TYH 129.5 puts
• 3,000 TYG/TYH 132.5 call calendar spds, 10
• Overnight trade
• -5,000 TYG 130.5/131 call spds, 15
• Block, 5,000 FVG 120.5 puts, 13.5

FOREX: EURUSD Pops As Greenback Wilts Approaching Month/Year-End

• Despite the early broad based dollar strength on Wednesday, the greenback had a powerful turnaround. The dollar index fell from 96.40 highs all the way to 95.80 as value date month-end fixing approached.
• EURUSD very firmly off the lows, regaining the 1.13 handle and clearing congestion resistance layered between 1.1342-44. The single currency went on to trade 1.1369 ahead of the fix before retreating and settling around 30 points lower.
• With the December highs at 1.1360 challenged, the focus turns to key resistance at 1.1383, Nov 30 high. A break of this hurdle is required to signal a stronger recovery.
• The move lower in the US dollar also benefitted AUD, NZD, GBP and CAD. AUDUSD came within touching distance of 0.7275, a Fibonacci retracement. For bulls, the clear break of 0.7224 signalled a resumption of short-term bullish activity as the pair continues to edge away from strong medium-term support just below the 0.70 mark.
• Resilient US equity markets bolstered USDJPY, briefly breaching the 115 mark. The break of the 114.25 hurdle last week strengthened bullish technical conditions for USDJPY, signalling potential for a stronger rally. The Nov 24 High at 115.52 remains a key resistance and the bull trigger.
• Swiss KOF Economic barometer tomorrow morning before US employment claims and the MNI Chicago PMI headline the US docket.

FX: Expiries for Dec30 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1284-90(E589mln), $1.1330-40(E771mln)
• EUR/GBP: Gbp0.8375(E541mln), Gbp0.8635(E583mln)

EQUITIES: Stocks on Solid Footing for Year-End

• While cash equity markets were mixed at the close, global stocks remain solid into year-end, with the e-mini S&P holding just below the all-time highs posted Tuesday as well as psychological resistance at the 4,800 mark. The Dow Jones Industrial Average outperformed slightly, while the NASDAQ was the laggard.
• Across the S&P 500, the strength in consumer staples, health care and real estate was countered by weaker energy, communication services and tech stocks to put the index broadly flat on the day.
• Sentiment across Europe was slightly more fragile, with continental markets in the red - although the UK's FTSE-100 outperformed to finish with gains of just shy of 0.7%. Strength across the likes of Diageo, Glencore and Experian boosted the index.

COMMODITIES: Oil Slips Despite Bullish US Inventory Data

• Crude oil futures have fully retraced a bid seen after bullish DOE US inventory data for an important holiday week, potentially correlated with some weakness in equities.
• WTI had increased more than 2% on larger-than-expected US crude oil, gasoline and distillate inventory drawdowns (crude -3576k vs -3166k expected).
• As it is, WTI is down -0.4% at $75.7, back where it was in earlier US trading although remains near month highs after last week’s bullish run.
• Amidst low volumes, the most active strikes today for the G2 (Feb’22) contract have all been calls: $85/bbl, $80/bbl and $77/bbl respectively.
• Brent is -0.7% at $78.4, off an intraday high of $80.17 yet also remains near month highs.
• OPEC+ next meets on Jan 4 to decide whether to go ahead with the 400kbpd increase in Feb.
• Goldman Sachs expects US crude prices going higher in 2022, with prices needing to stay high to spur supply.

OUTLOOK: Thu Look Ahead: Weekly Claims, Chicago PMI

• US Data/Speaker Calendar (prior, estimate)
• Dec-30 0830 Initial Jobless Claims (205k, 207k)
• Dec-30 0830 Continuing Claims (1.859M, 1.875M)
• Dec-30 0945 MNI Chicago PMI (61.8, 62.0)
• Dec-30 1130 US Tsy $50B 4W, $40B 8Y bill auctions