MNI ASIA MARKETS ANALYSIS: Rates Fade Hawkish Fed Refrain

US TSYS: Tsy Futures/Options Round-Up

Bonds leading steady march higher late Thu, highs for the wk outpacing Wed amid combination of short covering and new buying with futures back to early Jan 6 levels.

• Recent 30YY session low at 2.0499% after almost topping 2.10 earlier, 10YY 1.7076% low.
• Are markets fading hawkish Fed-speak? Perhaps that's what's contributing to the steady round of buying as more Fed officials see as many as four 25bp hikes this year.
• Then again, it could be straight-up risk-off as equities trade weaker (ESH2 -40.25 at 4676.0; Nasdaq below 100DMA at 14917.0 -271.) with IT (-1.85%), Consumer Discretionary (-1.25%) and Health Care (-1.04%) sectors underperforming.
• Eurodollar/Treasury option trade remains mixed, or less one-way than early week put buying with some accts unwinding downside insurance and buying calls. That said, 1StD put skews outpacing calls, implieds only mildly softer.
• Of note, January Eurodollar options expire Friday, February Treasury options expire next week Friday.
• Tsys gap lower but quickly recover after latest $22B 30Y Bond auction re-open (912810TB4) tailed again: 2.075% high yield vs. 2.072% WI; 2.35x bid-to-cover better than 2.22x last month (2.29x 5-month average)
  
  • Indirect take-up climbs to 64.98% vs. 60.80% in Dec; direct bidder take-up recedes to 17.08% vs. 18.49% prior, while primary dealer take-up slips to 17.95% vs. 20.71%.

SHORT TERM RATES

US DOLLAR LIBOR: Settlement resumes:

• O/N +0.00014 at 0.07743% (+0.00472/wk)
• 1 Month -0.00385 to 0.10629% (+0.00100/wk)
• 3 Month +0.00071 to 0.23914% (+0.00300/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.01315 to 0.39686% (+0.02043/wk)
• 1 Year +0.01443 to 0.71357% (+0.05186/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $70B
• Daily Overnight Bank Funding Rate: 0.07% volume: $250B

• Secured Overnight Financing Rate (SOFR): 0.05%, $891B
• Broad General Collateral Rate (BGCR): 0.05%, $351B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $339B
• (rate, volume levels reflect prior session)

• Tsy 2.25Y-4Y, $6.301B accepted vs. $17.129B submission

NY Fed updated purchase schedule: no new buys Friday through Monday's MLK Jr holiday, resume next week Tuesday, and again around the FOMC policy annc on Jan 26. NY Fed operations desk "plans to purchase approximately $40 billion over the monthly period from 1/14/22 to 2/11/22" vs. $60B prior as QE winds down.

• Tue 01/18 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B vs. $4.525B prior
• Thu 01/20 1010-1030ET: Tsy 10Y-22.5Y, appr $1.625B steady
• Fri 01/21 1010-1030ET: Tsy 0Y-2.25Y, appr $12.425B vs. $9.325B prior
• Tue 01/25 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B vs. $1.525B prior
• Pause again around the FOMC policy annc on Jan 26
• Thu 01/27 1010-1030ET: Tsy 22.5Y-30Y, appr $1.825B steady
• Mon 01/31 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.425B vs. $6.325B prior
• Tue 02/01 1100-1120ET: TIPS 7.5Y-30Y, appr $1.225B vs. $0.925B prior
• Thu 02/03 1100-1120ET: Tsy 10Y-22.5Y, appr $1.625B steady
• Tue 02/08 1010-1030ET: Tsy 22.5Y-30Y, appr $1.825B steady
• Thu 02/10 1010-1030ET: Tsy 7Y-10Y, appr $3.225B vs. $2.425B prior

FED Reverse Repo Operation

NY Fed reverse repo usage surged to $1,636.742B (79 counterparties) vs. $1,536.981B on Wednesday.
Remains well off all-time high of $1,904.582B on Friday, December 31.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• +20,000 short Apr 97.87/98.12 3x2 put spds, 15-15.5 vs. 98.41-41.5/0.54%
• +10,000 Dec 98.00/98.18 put spds, 2.0 ref 98.78
• +10,000 short Mar 98.50/98.75 put spd 9.5 over 98.75/99.00 call spd vs. 98.58/0.48%
• +5,000 Dec 98.50/98.75/99.00 call flys, 5
• +5,000 Dec 99.75 calls, 1.5
• 6,000 Jun 99.12/99.25 put spds vs. 99.31/99.43 call spds

• +12,000 TYH 127.5 puts, 26 ref 128-13.5
• 2,500 TYG 128.5 straddles, 44
• 12,600 wk1 TY 129.5 calls

EGBs-GILTS CASH CLOSE: Rally Continues

A busy supply schedule did little to deter European bond gains Thursday, with Bunds bull flattening and the UK curve bull steepening for the second consecutive session.

• The German long-end once again set the tone for EGBs in general, resuming Wednesday's bullish price action.
• Few European macro drivers today (soft US PPI was marginally positive for core Global FI), but supply was eyed: Italy, Ireland, and Cyprus (the latter two syndications) sold bonds today.
• Periphery EGBs enjoyed a constructive session, with BTPs outperforming.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.2bps at -0.599%, 5-Yr is down 2.2bps at -0.399%, 10-Yr is down 3.1bps at -0.09%, and 30-Yr is down 4.7bps at 0.204%.
• UK: The 2-Yr yield is down 4.6bps at 0.761%, 5-Yr is down 4.2bps at 0.936%, 10-Yr is down 3.5bps at 1.105%, and 30-Yr is down 2.7bps at 1.216%.
• Italian BTP spread down 1.5bps at 130.7bps / Spanish down 0.9bps at 67.7bps

EGB Options: Large Euribor Midcurve Trades Feature

Thursday's Europe rates / bonds options flow included:

• RXH2 169/168/167p fly bought for 10.5 in 5.1k and 10 in 1k
• RXH2 172.00/171.00 ps, sold at 63.5 in 10.5k
• ERM2 100.37/100.25ps, bought for 1.5 in 5k (June 2022 hike play)
• 2RJ2 100/99.75ps, sold at 14.5 in 10k (unwind)
• 2RJ2 99.62/99.75/100 broken c fly, bought for -1.5 (receive) in 20k
• 2RM2 99.75/99.62ps vs 99.87/100cs, bought the ps for flat in ~15k (ref 99.775, -25 del)

FOREX: US Dollar Consolidates At Two-Month Lows, JPY and CHF Firm

• The greenback is seen one tenth of a percent lower on Thursday, broadly consolidating the sizeable move seen during yesterday’s session. A turn lower in equity indices lent support to the likes of the Japanese Yen and the Swiss Franc.
• USDJPY (-0.47%) completed a full point move to the downside, following Wednesday’s break of 115.00, with the pair trading with a consistently offered tone through the NY session. The pair has now breached both the 20-day EMA and the 50-day EMA - at 114.22. This suggests scope for a deeper sell-off, potentially targeting 113.56, low Dec 21.
• Similarly, USDCHF fell 0.4% and briefly broke below some previous lows through the 0.91 handle.
• Elsewhere, ranges remained tighter compared to yesterday, however, EUR, AUD, GBP, NZD and CAD did all extend on their gains made yesterday.
• In emerging markets, Russia saying Ukraine talks hit a 'dead end' have diminished the chances of diplomatic resolutions and in turn have heavily weighed on the Ruble. USDRUB has risen close to 2% above the 76.00 mark. The break strengthens the bullish case and opens 78.0406, Apr 7 high.
• Chinese trade balance is scheduled overnight before monthly GDP/IP data will be released from the UK. December US retail sales and industrial production data will headline in the final US session of the week.

FX: Expiries for Jan14 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1235-50(E1.2bln), $1.1280-00(E3.9bln), $1.1320(E503mln), $1.1365-75(E1.5bln), $1.1395-05(E1.4bln), $1.1415-25(E2.5bln), $1.1460-70(E1.2bln)
• USD/JPY: Y110.75-00($1.8bln), Y111.80-00($560mln), Y113.35-50($1.6bln), Y113.65-80($1.1bln), Y114.45-55($835mln), Y114.90-10($1.7bln), Y116.00($1.5bln)
• GBP/USD: $1.3385-10(Gbp1.0bln)
• EUR/GBP: Gbp0.8350(E682mln)
• AUD/USD: $0.7125-40(A$1.3bln)
• NZD/USD: $0.6845-50(N$536mln)
• USD/CAD: C$1.2485($1.3bln), C$1.2500-10($2.0bln), C$1.2520-30($1.7bln), C$1.2540-50($929mln)
• USD/CNY: Cny6.35($620mln), Cny6.3750($555mln)

EQUITIES

Key late session market levels:

• DJIA down 230.11 points (-0.63%) at 36055.49
• S&P E-Mini Future down 68.5 points (-1.45%) at 4646.75
• Nasdaq down 377.7 points (-2.5%) at 14809.79

European bourses closing levels:

• EuroStoxx 50 down 0.49 points (-0.01%) at 4315.9
• FTSE 100 up 12.13 points (0.16%) at 7563.85
• German DAX up 21.27 points (0.13%) at 16031.59
• French CAC 40 down 36.05 points (-0.5%) at 7201.14

COMMODITIES: Oil Dips After A Two Day Surge

• Crude oil prices are currently down -0.5 to -1% on a volatile day with risk off sentiment emerging. WTI remains up 8% ytd.
• WTI is -1% at $81.8, not troubling resistance levels for once after two strong days. Resistance is eyed at $83.10 (Jan 12 high) with key short-term support at $77.83 (Jan 10 low).
• The most active strikes in the Feb’22 contract today have been $80/bbl puts.
• Brent is -0.6% at $84.16, falling back from initial resistance at $85.21 (Jan 12 high) with initial firm support at $80.50 (Jan 10 low).
• Gold meanwhile gives back yesterday’s gains, -0.25% at $1821.1. Resistance remains at $1831.9 (Jan 3 high) with support at $1800.2 (Jan 11 low).