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  • MNI: Fitch Puts US On Negative Ratings Watch
  • MNI: DBRS Morningstar Places United States Under Review With Negative Implications
Key Links:MNI INTERVIEW: Fed Needs Better QE Guardrails- Fed Adviser / MNI INTERVIEW: Wages Minor Part Of US Inflation-Fed’s Wozniak / MNI INTERVIEW: Deposits To Continue To Leave US Banks-Schnabl / MNI: U.S. Fiscal Trajectory Deviating From AAA peers-Fitch / MNI: DBRS Morningstar Places United States Under Review With Negative Implications / US Treasury Auction Calendar


US TSYS: Markets Roundup: Debt Deal Optimism After US AAA Rating Warning

Treasury futures traded steadily weaker since late morning amid generally positive word from debt ceiling negotiators that a deal can be agreed upon by as early as tomorrow.
  • Treasury 10Y futures finishing near late session lows at 112-16.5 after breaching several levels of support: next focus on 111-31 76.4% retracement of the Mar 2 - 24 rally. At the moment, 10Y yield has climbed .0774 to 3.8193%, highest in two weeks. Curves extended inversion, 2s10s falling to -73.245, the lowest since March 15.
  • Overnight volatility: rates surged overnight, reacting to negative ratings watch warnings from agencies Fitch and DBRS Morningstar if the US defaults on their debt obligations. House speaker McCarthy quick to respond with optimism that a deal can be struck in time.
  • Fast two-way post data: Treasury futures trading lower after weekly claims came out less than expected (229k 245k est; claims 1.8M est), GDP higher than expected (+1.3% vs. 1.1% est).
  • More notable upside revisions came from other domestic demand (non-resi investment and government) plus a sizeable boost in changes in inventories (albeit still dragging -2.1pp annualized on the quarter), offset by the previous boost from net trade being revised away (latest contribution exactly 0.00pps).
  • Reminder, Friday sees early close ahead Monday's Memorial Day Holiday, Floor closes at 1300ET, Globex at 1600ET. Markets closed Monday, Globex re-open at 1700ET.


SOFR Benchmark Settlements:

  • 1M +0.02499 to 5.13579 (+.04206/wk)
  • 3M +0.03373 to 5.22528 (+.06181/wk)
  • 6M +0.03801 to 5.23818 (+.09165/wk)
  • 12M +0.03133 to 5.00248 (+.12482/wk)

US DOLLAR LIBOR: Latest settlements:

  • O/N +0.00100 to 5.06286%
  • 1M +0.01914 to 5.16000%
  • 3M +0.03871 to 5.46314% */**
  • 6M +0.03200 to 5.56414%
  • 12M +0.08886 to 5.62257%
  • * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.46314% on 5/25/23
STIR: FRBNY EFFR for prior session:
  • Daily Effective Fed Funds Rate: 5.08% volume: $126B
  • Daily Overnight Bank Funding Rate: 5.07% volume: $279B
US TSYS: Repo Reference Rates
  • Secured Overnight Financing Rate (SOFR): 5.05%, $1.401T
  • Broad General Collateral Rate (BGCR): 5.03%, $587B
  • Tri-Party General Collateral Rate (TGCR): 5.03%, $578B
  • (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Federal Reserve/MNI

NY Fed reverse repo usage falls to $2,197.638B w/ 106 counterparties, compares to prior $2,250.709B. Compares to high usage for 2023: $2,375.171B on Friday March 31, 2023; all-time record high of $2,553.716B reached December 30, 2022.


Better call and call structure flow in SOFR and Treasury options carried over from overnight, change for the former after more consistent put trade over the last two sessions.
  • SOFR Options:
    • Block, 20,000 SFRZ3 94.00/95.00 2x1 put spds, 25.0 net vs. 95.105 to -.11/0.20%
    • Block, 5,000 SFRU3 93.75/94.25/94.75 put flys, 13.0 ref 94.815
    • Block, 4,000 SFRM3 94.75/94.81 put spds, 3.75 ref 94.72
    • 2,500 SFRH3 96.06/96.43 call spds ref 95.63
    • 9,000 OQM3 96.12 puts, 24.0 ref 96.07
    • 1,000 SFRN3 94.50/94.75 put spds vs. SFRQ3 94.75/94.87 put spds
    • Block, 6,000 OQU3 98.00 calls, 6.5 ref 96.44
    • Block, 4,000 OQM3 95.50/95.75 3x2 put spds, 6.5
    • Block, 3,000 SFRV3 95.25/95.62 call spds, 10.0 ref 95.18
    • 2,000 SFRV3 95.25/95.75/96.25 call flys ref 95.195
    • 2,000 SFRM3 94.87/94.93 call spds ref 94.74
    • over 27,500 SFRZ3 97.00 calls ref 95.165 to -.18
  • Treasury Options:
    • 7,400 TYM3 113 puts, 12
    • 1,000 FVM3 108 puts, 6.5
    • 5,100 TYM3 114 calls, 3 ref 113-06.5
    • 3,300 wk3 TY 116/117/118 call flys
    • Block/screen, 17,000 FVM3 110.75 calls .5
    • Block/screen 20,000 FVM 111.25 calls, both .5
    • 5,000 TYN3 117/119/120 broken call flys, ref 113-29
    • 1,100 USU3 143 calls, 18 ref 126-23

EGBs-GILTS CASH CLOSE: Gilts Remain Under Pressure

Gilts dropped sharply and underperformed for another session Thursday, as the implications of April's high UK CPI reading continued to be digested.

  • The UK curve bear flattened once again, with weakness focused on the 2-5Y segment as another 18bp of hikes were added to the implied BoE path (that' 65bp this week).
  • Bunds weakened as well, with modest yield rises accelerating just ahead of the cash close, though with no apparent trigger (10Y jumped 3bp in the last 25 minutes of the session).
  • Adding to the bearish tone was apparent progress on the US debt limit impasse, which pushed Treasury yields and the USD higher.
  • ECB commentary (including Knot, Villeroy, and Nagel) wasn't impactful, and revised GDP numbers showing Germany falling into technical recession had little bearing either.
  • Periphery spreads traded mixed, moving in Bunds' favour (despite the latter's sell-off) just before the cash close.
  • UK retail sales data highlights the docket first thing Friday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 4.8bps at 2.902%, 5-Yr is up 6.2bps at 2.531%, 10-Yr is up 5bps at 2.522%, and 30-Yr is up 3.7bps at 2.664%.
  • UK: The 2-Yr yield is up 18.4bps at 4.556%, 5-Yr is up 19.2bps at 4.328%, 10-Yr is up 16bps at 4.374%, and 30-Yr is up 10.6bps at 4.65%.
  • Italian BTP spread up 1bps at 187.6bps / Greek down 4.3bps at 138.4bps

EGB Options: Quieter Session For Rates Options

Thursday's Europe rates / bond options flow included:

  • ERH4 97.00/97.50/98.00c fly, bought for 3.5 in 4k

FOREX: NZD Extends Post-RBNZ Weakness, USDJPY Pierces 140.00 Handle

  • Overall greenback strength continues to prevail across currency markets with the USD index extending its winning streak to four sessions, up 0.35% on Thursday. The index is now roughly 3.25% off the May lows as the greenback reasserts itself against its G10 counterparts.
  • NZD remains at the bottom of the G10 pile, showing good downside momentum following the significant moves following the RBNZ on Wednesday. Price is now through the year’s lows which turns the focus to the psychological 0.60 mark, a good pivot dating back to September last year.
  • USDCNH has touched another fresh year-to-date high as the pair settles above the 7.09 amrk amid the general greenback appreciation and ongoing concerns over domestic growth. State-owned Chinese media outlets have once again pushed back on the idea of further sharp depreciation pressures for the yuan, with analysts cited in the report continuing to point to China’s positive economic fundamentals and expectations surrounding the end of the Fed’s easing cycle
  • Japanese yen weakness has also once again been consistent over the course of the US session with USDJPY steadily moving higher since the release of US data. Bullish conditions remain intact, and a fresh trend high reinforces the current theme. The 140.01 high print as of writing places the pair at the highest level since November 23, 2022.
  • With 140.00 the next obvious psychological barrier to overcome, major resistance does not come in until 140.62, the bull channel top drawn from the Jan 16 low.
  • Tokyo Core CPI highlights the APAC docket on Friday before UK retail sales for April hit the wires. Attention will then turn to US Core PCE Price index data, durable goods, personal income and U/Mich sentiment figures.

FX Expiries for May26 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.0650-65(E2.8bln), $1.0696-00(E913mln), $1.0765(E639mln), $1.0785-00(E2.7bln), $1.0865-80(E1.7bln), $1.0900(E1.6bln)
  • USD/JPY: Y139.00($530mln), Y140.00($995mln)

Equities Roundup: Nvidia Buoys Broad Swath of Tech Stocks

Stocks are trading higher in the second half, SPX and Nasdaq stocks outperforming Dow Industrials as tech-shares surged. Currently, S&P E-Mini futures are up 43 points (1.04%) at 4168.5; Nasdaq up 241.3 points (1.9%) at 12724.75; DJIA up 21.43 points (0.07%) at 32820.71.
  • SPX levels recovered after testing the 50-day EMA support at 4124.40 Wednesday, . A continuation higher would refocus attention on initial key resistance at 4227.25, the May 19 high. Clearance of this hurdle would resume the uptrend that started on Mar 13.
  • It's nice to see something other than debt-ceiling negotiations (albeit themselves sounding more positive over a resolution) as shares of Nvidia surged over 25% on the back of positive sales for graphics processors and AI chips.
  • Leading laggers: Information Technology shares lead the rally, following Nvidia's outperformance, Monolithic Power (MPWR) gained +17%, Synopsys +11% and Advanced Micro Devoices (AMD) +10.3%. Communication Services and Real Estate sectors were distant second and third place.
  • Leading laggers: Energy sector shares underperformed, paring early week gains as crude prices reversed (WTI -2.72 at 71.62), Utilities, Health Care and Consumer Staples sectors were not far behind.

E-MINI S&P TECHS: (M3) Corrective Bear Cycle Still In Play

  • RES 4: 4288.00 High Aug 19 2022
  • RES 3: 4244.00 High Feb 2 and a medium-term bull trigger
  • RES 2: 4231.00 High Feb 3
  • RES 1: 4227.25 High May 19
  • PRICE: 4157.00 @ 1435ET May 25
  • SUP 1: 4114.00 Low May 24
  • SUP 2: 4062.25 Low May 4 and key support
  • SUP 3: 4052.50 Low Mar 30
  • SUP 4: 4022.75 50.0% retracement of the Mar 13 - May 1 bull leg

S&P E-minis traded lower Wednesday and this resulted in a test of the 50-day EMA at 4124.40. A clear break of this average would highlight a stronger short-term reversal and expose 4062.25, the May 4 low and a key support. Price has recovered today. A continuation higher would refocus attention on initial key resistance at 4227.25, the May 19 high. Clearance of this hurdle would resume the uptrend that started on Mar 13.

COMMODITIES: Oil Slumps As Traders Test OPEC Resolve Ahead Of June Meeting

  • Crude oil has slumped today, first moving lower after Russia suggested OPEC are unlikely to adjust targets at the upcoming Jun 3-4 meeting according to Deputy Prime Minister Novak and with an added headwind from a steadily appreciating US dollar.
  • That said, JP Morgan joins other banks in stating that OPEC+ is ‘making good on its promise’ to cut supplies based on its voluntary cuts announced April 2.
  • Separately, a volatile tanker market is making physical traders increasingly cautious about buying cargoes according to Bloomberg as US crude deliveries to Europe has seen daily tanker earnings swing between $21k-$88k in the last month.
  • WTI is -3.4% at $71.79 off a low of $70.98 that moved closer to support at $69.39 (May 15 low). In contrast to the day’s sizeable downward pressure, the day’s most active strikes for the CLN3 have been at $85/bbl and $80/bbl strikes.
  • Brent is -2.9% at $76.11 off a low of $75.10 vs support at $73.49 (May 15 low).
  • Gold is -0.7% at $1943.74 off a post strong US data low of $1939.39 that moved closer to testing $1934.3 (Mar 22 low).

Friday Data Calendar

26/05/20232330/0830**JPTokyo CPI
26/05/20230130/1130**AURetail Trade
26/05/20230600/0700***UKRetail Sales
26/05/20230600/0800**SERetail Sales
26/05/20230645/0845**FRConsumer Sentiment
26/05/20230740/0940EUECB Lane Panels Dubrovnik Econ Conference
26/05/20230800/1000**ITISTAT Business Confidence
26/05/20230800/1000**ITISTAT Consumer Confidence
26/05/20231230/0830**USDurable Goods New Orders
26/05/20231230/0830**USPersonal Income and Consumption
26/05/20231230/0830**USAdvance Trade, Advance Business Inventories
26/05/20231400/1000***USFinal Michigan Sentiment Index
26/05/20231500/1100CAFinance Dept monthly Fiscal Monitor (expected)

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