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US TSYS: FI Sell-Off: Like Another FOMC Day Sans FOMC

US FI markets sold off in response to renewed hawkish Fed speak Monday, Tsy yields steadily higher with 30Y tapping 2.5531% late (highest lvls since Aug 2019).
  • Initial weakness after Atl Fed Bostic said uncertainty emanating from war in Ukraine has not altered his view to get going soon on reducing the balance sheet at a faster pace than after the financial crisis, a move that will complement the interest rate path.
  • Like another FOMC day sans FOMC: FI sell-off accelerated early afternoon after Fed Chair Powell's hawkish comments from NABE conf, willingness to make "more than 25bp" hikes at each meeting in order to keep inflation in check if needed.
  • Eurodollar Whites fell as much as -0.225 (EDU2-EDH3 -0.175-0.185 settle) as futures price in combination of 2 full points of rate hikes by year end.
  • Why wasn't Chair Powell more Hawkish at the March 16 FOMC, one trader queried. Another desk pondered today's moves meant either markets under-reacted to the March 16 FOMC or are over reacting today -- maybe a combination of both.
  • Data roundup for Tuesday: More Fed Speak Than Data (Richmond Fed Mfg):
    • 0910ET: NY Fed Wuerffell Sr VP on post-LIBOR world, ISDA webinar, Q&A
    • 1000ET Richmond Fed Mfg. Index (1, 2)
    • 1035ET: NY Fed Williams BIS panel discussion, no text, moderated Q&A
    • 1130ET: US Tsy $34B 52W bill auctions
    • 1400ET: SF Fed Daly Brookings Inst discussion
    • 1700ET: Cleveland Fed Mester on economy, mon-pol, text and Q&A


US DOLLAR LIBOR: Latest settlements:

  • O/N +0.00143 at 0.33014% (+0.24942 total last wk)
  • 1 Month -0.00257 to 0.44400% (+0.05000 total last wk)
  • 3 Month +0.02357 to 0.95757% (+0.10800 total last wk) ** Record Low 0.11413% on 9/12/21
  • 6 Month +0.04857 to 1.33614% (+0.15700 total last wk)
  • 1 Year +0.08171 to 1.86814% (+0.19043 total last wk)

STIR: FRBNY EFFR for prior session:

  • Daily Effective Fed Funds Rate: 0.33% volume: $72B
  • Daily Overnight Bank Funding Rate: 0.32% volume: $253B

US TSYS: Repo Reference Rates

  • Secured Overnight Financing Rate (SOFR): 0.30%, $968B
  • Broad General Collateral Rate (BGCR): 0.30%, $381B
  • Tri-Party General Collateral Rate (TGCR): 0.30%, $371B
  • (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Federal Reserve/MNI

NY Fed reverse repo usage climbs to highest since Feb 23 at $1,728.893B w/ 90 counterparties vs. $1,715.148B prior session -- remains well off all-time high of $1,904.582B on Friday, December 31.


Heavy put volume Monday on an unexpectedly active session with Tsy yields surging (30YY climbing to 2.5531% high) on the back of hawkish Fed chair Powell comments from NABE conf: in short willingness to make "more than 25bp" hikes at each meeting in order to keep inflation in check if needed.
  • Rather quiet start to the session on lighter volumes w/Japan out on extended holiday weekend, varied put buying accelerated around midday, finishing strong with large Eurodollar put condor blocks after the close as underlying futures priced in appr eight 25bps hikes (or combination of 50 and 25 bps hikes) by year end.
  • Salient Treasury option flow: large call sales as an opener: over 25,000 FVK 115.75 calls sold (open interest only 276 coming into the session) and -38,000 TYK 124 calls from 42-40 with open interest 1,499 coming into the session.
Eurodollar Options:
  • Block, +30,000 Dec 97.12/97.37/97.62/97.87 put condors, 6.0
  • Block, +10,000 Sep 97.25/97.50/97.75 put flys, 3.0
  • 9,000 Blue Jun 97.75/98.00 put spds
  • Block, +20,000 Green Sep 98.25 straddles 38.0-39.0 over Green Dec 97.37/97.87 strangles at 1125:30ET
  • +7,500 short Jun 98.00 calls, 3.0
  • 5,000 Dec 96.75/97.25 put spds vs. 98.00/98.12 call spds
  • 14,000 Dec 98.43/98.56 call spds
  • Overnight trade:
  • Another 7,000 Blue Sep put spds adding to Block:
  • Block, 5,000 Blue Sep 96.87/97.37 put spds, 11.0
  • Block, 10,000 May 99.00/99.12 put spds, 12.0 vs. 98.49/0.05%
  • 4,500 short Jun 97.37/97.62 put spds
  • 12,850 short Jun 97.18/97.75 put spds
  • Another 6,000 put condors adding to Block:
  • Block, 8,880 Red Jun'23 96.50/96.62/96.87/97.00 put condors, 1.5
  • 2,000 Dec 97.00/97.75 2x1 put spds
  • 2,000 Jun 99.00 calls, 3.5-3.25
  • 1,000 Dec 98.12/98.37 put spds vs 99.12 calls
Treasury Options:
  • Block, -25,000 FVK 115.75 calls, 22.5 , ref 115-07
  • -20,000 TYK 124 calls, 42
  • -20,000 TYJ 122/123 put spds, 6 ref: 123-27.5/0.16%
  • 2,500 TYJ 123.5/126 put spds, 1-56
  • 7,000 FVJ 115.25/116.25 strangles, 15
  • Overnight trade
  • +7,500 TYM 122.5/126.5 put over risk reversals, 1 vs. 124-16
  • +8,000 TYJ 126.25 calls, 2
  • 3,000 TYK 126 calls, 21
  • +5,000 FVM 114/115 put spds, 15.5 vs. 115-26.5/0.08%

EGBs-GILTS CASH CLOSE: Powell Completes The Rout

Yields surged to start the week, with UK yields up double-digits across the curve, and the German curve bear steepening.

  • Yields climbed steadily throughout the session. Among other milestones, 10Y Bund yields hit the highest since 2018.
  • Hawkish comments by Federal Reserve Chair Powell toward the end of the European session (including hinting strongly at a 50bp rate hike) completed the rout.
  • Not exactly a risk-on session, with equities mixed at best; performances in periphery likewise mixed (BTP spreads higher, Greece lower).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 5.4bps at -0.284%, 5-Yr is up 8.6bps at 0.176%, 10-Yr is up 9.7bps at 0.47%, and 30-Yr is up 9.7bps at 0.658%.
  • UK: The 2-Yr yield is up 11.3bps at 1.322%, 5-Yr is up 13.4bps at 1.378%, 10-Yr is up 14.1bps at 1.638%, and 30-Yr is up 12.3bps at 1.866%.
  • Italian BTP spread up 2bps at 153.9bps / Greek down 5.1bps at 222bps

FOREX: Greenback Subdued Despite Spike In US Yields, USDJPY Remains Firm

  • Major currencies remained on the side-lines throughout Monday trade. While the dollar index sits in positive territory, up around 0.25%, the action was extremely subdued given the moves seen in US yields.
  • With Chair Powell confirming the Fed’s endorsement for the increasingly hawkish path in the dot plot, front-end yields spiked as much as 20 basis points but this was unable to spark any life into the dollar or indeed G10 FX markets overall.
  • With that said, USDJPY (+0.25%) continues to edge higher after the pair posted its Highest weekly close since January 2016 last Friday. The pair remains on an upward trajectory following significant break of 116.35 and the subsequent impressive three big figure extension in just over a week.
  • Last week’s important technical break was the move through resistance at 118.60/66, the Jan 3 ‘17 and Dec 15 ‘16 highs, strengthening current bullish technical conditions. Note too that the USD is also approaching the top of a bull channel, at 119.90, drawn from the Jun 1, 2021 high - an important chart point and resistance.
  • With Powell’s rhetoric taking the shine off the recent equity rally, AUD and NZD are Monday’s laggards, both retreating between 0.35-0.45% and closely followed by the single currency.
  • After probing key short-term resistance at 1.1121 last week, the near-term outlook has improved for EURUSD. However, a clear break is still required to signal potential for a stronger recovery. A continuation of the reversal lower from here would instead open the bear trigger at 1.0806, Mar 7 low.
  • RBA Governor Lowe is scheduled to speak at the Walkley Awards for Business Journalism, in Sydney overnight. This comes ahead of potential comments from ECB’s Lagarde, due to speak about the future of money in the Eurosystem and the potential role for a digital Euro at an online summit.
  • A light data calendar on Tuesday, however UK inflation data precedes the UK budget release on Wednesday.

EQUITIES: Late Equity Roundup, SPX Mildly Weaker as Tsy Yields Surge Higher

Still weaker, stocks managed to bounce after extending session lows after Fed Chair Powell made hawkish comments from early afternoon NABE conf: willingness to make "more than 25bp" hikes at each meeting in order to keep inflation in check if needed.

  • Even higher crude levels (WTI +7.92 at 112.62) did little to dampen share prices while Tsy yields continued to climb to levels not seen since Aug 2019: 30YY hit 2.5531% late, equity index markets rebounded to mildly weaker levels in comparison:
    • SPX emini traded -14.5 (-0.33%) at 4439.5, while Dow trades -294.52 (-0.85%) at 34463.4, and Nasdaq -107.3 points (-0.8%) at 13788.81.
  • SPX leading/lagging sectors: Bounce in crude a tailwind for Energy sector (+4.03%) with multiple petroleum drillers, manufacturers, pipelines trading higher. Materials and Utilities sectors distant second (both appr +.64%), mining, drilling and energy transmission outperforming.
  • Laggers: Communication Services (-1.27%) with media and entertainment lagging amid reports of Apple, Amazon and Google experiencing outages; Consumer discretionary (-1.07%) - outperforming autos tempered by weaker retailing, consumer services and durables.
  • Dow Industrials Leaders/Laggers: Caterpillar (CAT) +2.83 at 223.74 and Chevron (CVX) +3.62 at 165.35. Laggers: Home Depot (HD) -12.0 at 328.74; Boeing (BA) -6.61, 186.22 under pressure after 737 crash in Guangxi province, China.
E-MINI S&P (M2): Has Cleared The 50-Day EMA
  • RES 4: 4730.50 High Jan 1
  • RES 3: 4663.50 High Jan 18
  • RES 2: 4578.50 High Feb 9 and a key resistance
  • RES 1: 4473.00 Intraday high
  • PRICE: 4465 25 @ 13:47 GMT Mar 21
  • SUP 1: 4323.83 20-day EMA
  • SUP 2: 4129.50/4094.25 Low Mar 15 / Low Feb 24 and a bear trigger
  • SUP 3: 4055.60 Low May 19 2021 (cont)
  • SUP 4: 4029.25 Low May 13 2021 (cont)

The primary trend in the S&P E-Minis remains bearish, however, the contract traded higher last week and in the process cleared a number of important short-term resistance levels. The 20-day EMA and late last week, the 50-day EMA, have both been cleared. The breach of the latter average is an important short-term bullish development and an extension would open 4578.50, the Feb 9 high. Initial support is at 4323.83, the 20-day EMA.

COMMODITIES: Oil Surge Continues As EU Mulls Russian Import Ban

  • Oil prices have started the week off strongly as the EU considers a ban on Russian imports along with a smaller boost from US officials warning the Iran talks could fail if there’s no compromise over the IRGC terror listing.
  • On the EU plans, there has been some pushback from Germany but the WSJ reports that broader support is growing.
  • WTI is +6.8% at $111.81, through initial resistance of $110.29 and opening $114.88 (Mar 10 high) with scope for a stronger short-term rally.
  • The most active strikes in the May’22 contract have been $120/bbl calls and $130/bbl calls.
  • Brent is +7.3% at $115.83. Similarly, it is through initial resistance of $113.91 (Mar 11 high) and next eyes $118.36 (Mar 10 high).
  • Gold is +0.65% at $1933.9 despite a hit from a hawkish Powell indicating a more aggressive hiking path ahead.

Tuesday Data Roundup

22/03/20220700/0700***UKPublic Sector Finances
22/03/20220720/0820EUECB de Guindos in Panel at Money Review Banking Summit
22/03/20220900/1000**EUEZ Current Acc
22/03/20221000/1100**EUConstruction Production
22/03/20221100/1100**UKCBI Industrial Trends
22/03/20221230/0830**USPhiladelphia Fed Nonmanufacturing Index
22/03/20221255/0855**USRedbook Retail Sales Index
22/03/20221310/1410EUECB Panetta Opening CCP Risk Management Conference
22/03/20221315/1415EUECB Lagarde Speech at BIS Innovation Summit
22/03/20221400/1000**USRichmond Fed Survey
22/03/20221515/1515UKBOE Cunliffe Panels BIS Innovation Summit
22/03/20221530/1130**USUS Treasury Auction Result for 52 Week Bill
22/03/20221700/1800EUECB Lane Panels Discussion on Flexible Exchange Rates
22/03/20221800/1400USSan Francisco Fed's Mary Daly
22/03/20222100/1700USCleveland Fed's Loretta Mester

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