MNI ASIA MARKETS ANALYSIS: Fed: Don't Worry About Inversion

US TSYS: Yield Curves Pancake

• Meanwhile, 3s, 5s and 7s extending inversion vs. 10s, 5s10s at -8.125 vs. -9.094 low as Tsys held near session lows through the second half. See MNI Policy main wire Brief: Fed Paper Dismisses Yield Curve Inversion Signal at 1100ET. Link to Fed paper: (Don't Fear) The Yield Curve, Reprise.
• US FI markets gapped lower (30YY surged from appr 2.512% to 2.5767% over 20 minute period, making new highs at 2.641%). Timing of rate move occurred around the release of IFX headlines: RUSSIAN ARMY TO FOCUS ON TAKING FULL CONTROL OVER DONBAS, however: Open to interpretation on whether that is a positive development (potential for triggering rate sale) or NOT as equities trimmed gains over same period.
• On tap for next week:
  • Advance Goods Trade Balance (-$107.6B, -$106.3B), 0830ET
  • Wholesale Inventories MoM (1.0% rev, 0.8%), 0830ET
  • Retail Inventories MoM (1.9%, 1.3%), 0830ET
  • Dallas Fed Manf. Activity (14, 10), 1030ET
• Treasury auctions Monday:
  • US Tsy $57B 13W, $48B 26W bill auctions at 1130ET
  • US Tsy $50B 2Y Note auction (91282CEG2), 1130ET
  • US Tsy $51B 5Y Note auction (91282CEF4), 1300ET

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N -0.00129 at 0.32657% (-0.00214/wk)
• 1 Month -0.00200 to 0.44514% (-0.00143/wk)
• 3 Month +0.01729 to 0.98286% (+0.04886/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.02528 to 1.45114% (+0.16357/wk)
• 1 Year +0.03085 to 2.08871% (+0.30228/wk)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 0.33% volume: $74B
• Daily Overnight Bank Funding Rate: 0.32% volume: $246B

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 0.27%, $900B
• Broad General Collateral Rate (BGCR): 0.30%, $351B
• Tri-Party General Collateral Rate (TGCR): 0.30%, $339B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage recedes to $1,676.974B w/ 86 counterparties vs. prior session's $1,707.655B. Compares to Wednesday's year-to-date high of $1,803.186B and still well off all-time high of $1,904.582B on Friday, December 31.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• Note on underlying Treasury futures and yield curve in relation to recession concern -- or measure of confidence in Fed managing a soft landing. Tsy yield curves bear flatten sharply! After starting off the session around +12.17, the 5s30s curve slipped below 2.0 recently to 1.6632 low -- brings it back near early 2006 levels now when pair inverted from Feb-March to low of -12.669 on Feb 27, 2006. Meanwhile, 3s, 5s and 7s extending inversion vs. 10s, 5s10s at -8.125 vs. -9.094 low.
  
• Treasury options appeared to favor buying put structures across the curve with particular interest in 5s as the sector seems to be the most sensitive to hawkish Fed shifts.
• Over +67,000 FVK 114 puts, 26-26.5 and +10,000 FVM 112/113 put spds, 10.5 vs. 114-26.5/0.08%. in 10Y options:
• +7,000 TYK 121/122.5 put spds 7.0 over 124.5 calls vs. 122-25/0.46%; 30Y: +6,000 USK 147/147.5 put spds, 3
• Eurodollar option trade was more mixed on net, couple notable trades: buyer of +10,000 Jun 98.87/99.00 call spds, 1.25 followed by sale of -10,000 Sep 97.50/97.87 call over risk reversals, 3.0 vs. 97.72/0.80%. Late iron condor sale took in 28.5 on -4,000 Jun 96.25/96.75/97.87/98.8.37 iron condors.

• -10,000 Sep 97.50/97.87 call over risk reversals, 3.0 vs. 97.72/0.80%
• -4,000 Jun 96.25/96.75/97.87/98.8.37 iron condors, 28.5
• Seller Dec 97.00/97.37/97.87 put trees, 3.0
• +10,000 Jun 98.87/99.00 call spds, 1.25
• +2,000 Sep 98.00/98.25 call spds 0.0 over Sep 97.00 puts
• +5,000 Dec 97.00 puts, 25.5 vs. 97.405/0.32%
• +5,000 short Dec 97.00 puts, 25.5 vs. 97.405/0.32%
• Overnight trade
• +2,000 short Apr 97.37/97.50 call spds, 1.5 ref: 97.005
• -2,000 Dec 96.87/97.50 3x2 put spds, 31.0 ref 97.39

• 7,000 TYM 127 calls, 13
• 7,100 TYM 116.5/118.5 put spds, 4
• 2,500 TYK 120/122 put spds, 54
• 1,500 FVK 113/113.5/114 put flys
• 2,000 FVK 113.5 puts, 28.5
• Block, +10,000 FVK 114 puts, 31 ref 114-17.5
• +1,000 TYK 118/120/122 put flys, 20 vs. 122-23
• Overnight trade
• 1,500 TYM 118.5/120 put spds
• Block, +5,000 FVM 112/113 put spds, 10.5 vs. 114-26.5/0.08%
• +7,000 TYK 121/122.5 put spds 7.0 over 124.5 calls vs. 122-25/0.46%
• +6,000 USK 147/147.5 put spds, 3
• +5,000 FVK 114 puts, 26-26.5

EGBs-GILTS CASH CLOSE: Another Day, Another Selloff

Bond weakness saw little respite to end the week, with the short-end/bellies of the UK and German curves selling off sharply.

• Multiple potential factors weighed, including an increasingly hawkish sell-side outlook for near-term Fed hikes, and optimism that Russia may have limited its ambitions in the Ukraine conflict.
• Both the UK and German curves bear flattened. 10Y Bund yields hit highest since 2018 and closed on the highs.
• Periphery EGB spreads narrowed on core weakness: GGBs outperformed.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 6.4bps at -0.135%, 5-Yr is up 8.5bps at 0.355%, 10-Yr is up 5.5bps at 0.587%, and 30-Yr is up 3.5bps at 0.7%.
• UK: The 2-Yr yield is up 6.8bps at 1.416%, 5-Yr is up 5.8bps at 1.473%, 10-Yr is up 4.9bps at 1.695%, and 30-Yr is up 4bps at 1.881%.
• Italian BTP spread down 2.5bps at 149.6bps / Greek down 4.3bps at 222.8bps

EGB Options: Large Bobl Downside, Mixed Euribor

Friday's Europe rates / bond options flow included:

• OEK2 129.50/128.50 ps vs 130.25 c, bought the ps for -.7.5 up to -6 (receive) in 20k total
• ERZ2 99.37p, sold at 7.25 in 5k
• ERU2 100.125/100.25/100.50c fly, bought for 1 in 5.5k

FOREX: More Muted Friday After Volatile Week

• Currency markets were more muted Friday, consolidating after several sessions of acute volatility - mainly led by JPY crosses. Both USD/JPY and EUR/JPY this week printed fresh cycle and multi-year highs, sending upside targets north and prompting mild verbal intervention from Japanese ministers. Both currencies showed technical signs of being overbought, prompting a session of consolidation Friday in which the JPY regained a very small part of the recent lost ground.
• NOK was the strongest performer Friday, benefiting from both a higher oil price as well as the Norges Bank decision on Thursday, which showed a far sharper, steeper rate path projection relative to the past forecast round in December. USD/NOK and EUR/NOK hold close to recent YTD lows.
• The oil saw support into the Friday close, as an attack on a Saudi Aramco facility in Jeddah erased any downside pressure that followed reports that the US are considering another wave of oil reserve releases as gas prices remain sticky.
• Focus in the coming week turns to the latest US jobs release, with markets expecting job gains of 480k and another downtick in the unemployment rate to 3.7%. Personal income/spending data is also due, while markets will also contend with month-end flows.

FX: Expiries for Mar28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0950-60(E1.0bln), $1.1000(E532mln)
• USD/JPY: Y120.50-70($649mln)
• USD/CAD: C$1.2535-50($1.0bln)

Late Equity Roundup, SPX Firmer, Near Mid-Range

Equity indexes have had a rocky session are holding mostly/mildly higher after the FI close: SPX eminis near middle of the session range: +2.25 (0.05%) at 4515.5, Dow trades +6.91 (0.02%) at 34717.1, and Nasdaq -99.3 (-0.7%) at 14092.99.

• Earlier focus was on key resistance of 4578.5 (Feb 9 high), while morning sell-off turned focus to key support of 20-day EMA: well below at 4375.64.
• SPX leading/lagging sectors: Energy sector remains strong +2.02%, with Utilities +1.18. Laggers: Information Technology sector (-0.76%) after making strong gains Thu, and Consumer Discretionary -0.59% (durables: +0.17 weighed down by retailing -0.41%, consumer services -0.54 and autos -1.36%)
• Dow Industrials Leaders/Laggers: Travelers insurance (TRV) +2.78 at 187.00, Chevron (CVX) +2.59 at 168.89 (U.S AUTHORIZE CHEVRON TO OPERATE IN VENEZUELA, Bbg). Laggers: Home Depot (HD) continues to sell off -5.64 at 310.14.

COMMODITIES: Oil Finishing A Strong Week Nudging Higher

• Oil prices sit only slightly higher on the day having fallen through the day before rising sharply on a missile strike on a Saudi Aramco distribution plant.
• However, rather than simply being a short-term supply shock only effecting a few front-dated contracts, the increasingly frequency of attacks appears to have weighed on prices further out the curve.
• WTI is +0.6% at $113.0 and hasn’t troubled yesterday’s resistance of $116.64. Support is seen at the 20-day EMA of $103.74.
• After a mixed day, the most active strike for the May’22 contract has been $130/bbl calls followed by $126/bbl calls.
• Brent is +0.5% at $119.57, also below initial resistance of $123.74 (Mar 22 high) whilst comfortably above support at the 20-day EMA of $109.28.
• Gold is -0.16% at $1954.63, seeing a dip as rate hike expectations surged. Having cleared a similar level of resistance yesterday, it next eyes $1966.1 (Mar 24 high) whilst support is seen at the 50-day EMA of $1899.6.
• Weekly moves: WTI +7.6%, Brent +10.5%, Gold +1.7%, European Nat Gas -3.6 to -3.8%.

Monday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
28/03/2022	1100/1200			UK	BOE Bailey in Conversation w. Guntram Wolff
28/03/2022	1230/0830	**		US	Advance Trade, Advance Business Inventories
28/03/2022	1430/1030	**		US	Dallas Fed manufacturing survey
28/03/2022	1430/1530			UK	DMO Consultation Gilt Issuance 2022/23
28/03/2022	1530/1130	*		US	US Treasury Auction Result for 2 Year Note
28/03/2022	1530/1130	*		US	US Treasury Auction Result for 26 Week Bill
28/03/2022	1700/1300	*		US	US Treasury Auction Result for 5 Year Note
28/03/2022	1700/1300	*		US	US Treasury Auction Result for 13 Week Bill