MNI (NEW YORK) - HIGHLIGHTS:
- Treasuries Outperform Global Counterparts As US Retail Sales Drop Sharply
- USD Index at 2-Month Lows, Technical Backdrop Deteriorating
- Upcoming Week's Data Includes February Flash PMIs and UK Inflation And Labour Market Data
US TSYS: Yields Pull Back Again With Consumer Growth Story In Question
Treasuries outperformed global counterparts Friday, fully completing a reversal from a midweek selloff.
- A large miss in January retail sales (-0.9% M/M vs 0.7% prior, -0.2% consensus) represented the biggest sequential drop in 22 months, with a similarly weak "control group" figure leading to a 0.5pp downgrade to the Atlanta Fed's GDP nowcast (to 2.3% GDP growth in Q1, i.e. no acceleration from Q4).
- That was enough to see the 10Y Treasury yield drop 7bp in the subsequent half hour, continuing the downtrend seen beginning in the immediate aftermath of Wednesday's hot CPI release. 10Y yields dropped over 21bp from the Wednesday high to Thursday's low, ultimately ending a tumultuous week 1.5bp lower.
- Yields ticked a little higher in afternoon trade Friday but the curve leaned bull steeper on the day, with the belly outperforming: 2-Yr yield is down 4.6bps at 4.261%, 5-Yr is down 5.7bps at 4.3328%, 10-Yr is down 5.1bps at 4.4782%, and 30-Yr is down 3.9bps at 4.6982%.
- In futures: Mar 10-Yr futures (TY) up 9/32 at 109-08 (L: 108-26 / H: 109-15.5).
- Other data (industrial production mixed, import prices soft) had little lasting impact.
- The coming week’s data schedule is relatively light, due in part to Monday’s Presidents Day holiday (SIFMA recommends bond cash close, equities closed), with initial jobless claims, February prelim PMIs, and regional Fed manufacturing surveys among the highlights. Supply includes 20Y Bond and 30Y TIPS auctions.
- We also get plenty of Fed communications including the January meeting minutes, and speaking appearances by both doves (Gov Waller) and hawks (St Louis Pres Musalem).
MNI US Macro Weekly: Turn Of The Year Brings Some Twists
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- Sequential price pressures in the January CPI report exceeded all expectations, but the hawkish impact was blunted 24 hours later by relatively benign PPI details.
- The week ended with a notably soft retail sales report, one that means that Q1 2025 goods PCE growth will have to be reconsidered to the downside absent a big reversal to the upside in February and/or revisions.
- In other net dovish releases, the NY Fed consumer survey saw inflation expectations bely the sharp climb in the partisan-disrupted U.Mich equivalent the week prior whilst manufacturing production disappointed.
- President Trump has also announced plans to announce reciprocal tariffs but details were lacking and the Commerce Department is due to report on a plan in April.
- Fed Funds implied rates are ending the week at lows, with 41bp of cuts priced for 2025 vs 26bp post-CPI.
- The coming week’s data schedule is relatively light, due in part to Monday’s federal government holiday.
- Aside from the weekly jobless claims release, data points include preliminary February PMIs, regional Fed manufacturing surveys, various housing indicators, and the final UMichigan consumer survey (eyed for any revision of strong 4.3% 1-year inflation expectations).
- Otherwise, the week will be mainly given over to Fed communications, including the January FOMC meeting minutes. Among the speakers, we will be most interested to hear Gov Waller’s take on the latest data, as he has been one of the more dovish members of late, and St Louis’s Musalem – a hawk and 2025 FOMC voter - who hasn’t discussed his monetary outlook since the January meeting.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US TSYS/OVERNIGHT REPO: Secured Rates Tick Higher, Could Rise Slightly Further
Secured financing rates ticked up slightly Thursday, with SOFR, BGCR, and TGCR each rising 1bp. Effective Fed Funds were once again unchanged at 4.33%.
- Outside of the year/quarter end in December and the month-end in January, SOFR has largely traded in line or lower than effective Fed funds since the Federal Reserve adjusted ON RRP rates in mid-December (to 4.25% from 4.55%, 5bp more than the 25bp Fed funds rate cut).
- Secured rates could tick a little higher (the 4.32% on Wednesday was a 15-session low) in the coming days though, particularly given settlements from the quarter's Treasury refunding auctions on Tuesday, though the usual cash inflows to market from GSEs next week should mitigate upside rate pressure.
- Month-end will be a bigger test due to the usual factors, plus extremely large coupon Treasury settlements.
REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.33%, 0.01%, $2329B
* Broad General Collateral Rate (BGCR): 4.32%, 0.01%, $930B
* Tri-Party General Collateral Rate (TGCR): 4.32%, 0.01%, $907B
New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.33%, no change, volume: $94B
* Daily Overnight Bank Funding Rate: 4.33%, no change, volume: $273B
US TSYS/OVERNIGHT REPO: ON RRP Takeup Hits Fresh 3+ Year Low
Takeup of the Fed's overnight reverse repo facility fell $9B to a fresh post-April 2021 low of $58.8B Friday (vs $2.3T at the 2023 peak).
- Usage of the facility has dropped $40.9B since Monday.
- As we noted Thursday following the Fed's weekly H.4.1 release, while takeup of the overnight reverse repo facility - an auxiliary supply of bank reserves - continues to peter out, there appears to still be little to no urgency among Fed officials to slow or stop balance sheet runoff given that reserves remain elevated ($3.26T in the latest weekly data, around levels we saw as far back as mid-2022).
- The Treasury drawing down its cash at the Fed amid debt limit restrictions should also be contributory to reserve balances over the coming months.
SOFR FIX - Source BBG/CME
- 1M 4.31365 0.00179
- 3M 4.32299 +0.00001
- 6M 4.31099 -0.00402
- 12M 4.27487 -0.01666
US SOFR/TREASURY OPTION SUMMARY
Friday's US rates/bond options flow included:
- SFRH5 95.62p, traded half in 2k.
- SFRH5 96.93c, traded 0.25 in 4k.
- SFRH5 95.75/95.62ps 1x2, Traded 3.75 in 3k.
- SFRK5 97.00c, traded for 0.75 and 1 in 3k.
- SFRU5 95.93/95.81/95.68p fly, traded 1 in 1.5k
- SFRU5 96.50c, traded for 6.5 in 1.5k.
- SFRU5 95.87^, traded for 36 in 5k.
- SFRJ5 95.87/95.75/95.68p fly 1x3x2 with SFRK5 95.81/95.68/95.62p ladder 1x3x2, bought for 10 in 2k.
- SFRM5 95.68p, sold at 2.5 in 10k.
- 0QH5 96.00c, bought for 13 in 3k.
- TYH5 107p, bought for 11 in 15k
- TYJ5 107p, bought for 11 in 17k total.
- TYJ5 107/106ps, bought for 7 in 15k total.
BONDS: EGBs-GILTS CASH CLOSE: Week Ends On A Bear Flattening Note
European curves bear flattened Friday.
- An early rise in yields linked to prospects of a less-onerous-than-expected US reciprocal tariff regime (announced late Thursday) was sharply pared in early afternoon.
- US data once again drove the afternoon move as January US retail sales came in much weaker than expected.
- Bund and Gilt yields would fall to session lows around a half hour after that release, but edged slightly higher going into the weekend to finish near the middle of the session's range.
- ECB cut pricing was pared by around 4bp for 2025 as a whole (to 78bp), with BOE flat (57bp).
- After initially tightening, periphery EGB spreads widened steadily through the session.
- Core curves bear flattened slightly for the week as a whole, with Gilts outperforming: 10Y Gilt yields closed the week 2.4bp higher, with 2Y up 3.2bp; 10Y Bund yields were up 5.9bp, with 2Y up 6.5bp.
- Next week's calendar includes flash February PMIs and UK inflation and labour market data.
Closing Yields / 10-Yr EGB Spreads To Germany:
- Germany: The 2-Yr yield is up 2.5bps at 2.113%, 5-Yr is up 1.8bps at 2.225%, 10-Yr is up 1.3bps at 2.431%, and 30-Yr is up 0.4bps at 2.676%.
- UK: The 2-Yr yield is up 2.1bps at 4.2%, 5-Yr is up 1.5bps at 4.211%, 10-Yr is up 1bps at 4.5%, and 30-Yr is up 1bps at 5.086%.
- Italian BTP spread up 1.9bps at 109.1bps / Spanish bond spread up 1.6bps at 62.9bps
EUROPE OPTIONS: Limited Trade Caps Off A Week Of Call Condors
Friday's Europe rates/bond options flow included:
- ERM5 97.875/98.00/98.125/98.25 call condor bought for 5 in 4.5k
FOREX: USD Index at 2-Month Lows, Technical Backdrop Deteriorating
- The surprisingly weak US retail sales report, with revisions not coming close to offsetting the January miss, has prompted a dovish reaction in US rates on Friday. This dynamic has further weighed on an already struggling USD index, which has printed a fresh 2-month low today at 106.57.
- Equity markets remain elevated, clinging on to renewed optimism surrounding Russia/Ukraine, which has helped higher beta currencies to outperform in G10. NZDUSD has extended intra-day gains to 1%, while AUDUSD has breached the 0.6350 mark, rising 0.65% on Friday.
- EURUSD has also made a notable advance above 1.0500, briefly reaching a 1.0514 session peak. Price action today has affirmed the short-term bullish technical theme.
- This week’s rally also strengthens a short-term reversal signal on Feb 3 - a hammer - and suggests scope for an extension near-term. The next important chart point is 1.0533, the Jan 27 high and reversal trigger. Above here, the market’s attention will turn to 1.0630, the Dec 6 high.
- Sterling continues to trade with a resilient bid tone, allowing GBPUSD to consolidate its position back above 1.2600 as we approach the close. Gains on the week now total 1.66%. The pair has breached resistance at 1.2550, the Feb 5 high, signalling scope for a move towards 1.2667, the Dec 19 high.
- Worth noting it is US Presidents' Day on Monday so likely the market focus will turn to Tuesday’s RBA meeting and UK labour market report.
OPTIONS: Expiries for Feb17 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0500(E3.6bln)
- USD/JPY: Y148.20($986mln), Y152.00-20($1.1bln)
- AUD/USD: $0.6285-00(A$515mln)
DATA/EVENTS CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 17/02/2025 | 2350/0850 | *** |  JP | GDP |
| 17/02/2025 | - |  AU | Reserve Bank of Australia Meeting | |
| 17/02/2025 | 0700/0800 | ** |  SE | Unemployment |
| 17/02/2025 | 0800/0900 |  CH | Flash GDP | |
| 17/02/2025 | 1000/1100 | * |  EU | Trade Balance |
| 17/02/2025 | - | EU | ECB's Lagarde and Cipolllone in Eurogroup meeting | |
| 17/02/2025 | 1315/0815 | ** |  CA | CMHC Housing Starts |
| 17/02/2025 | 1330/0830 | * | CA | International Canadian Transaction in Securities |
| 17/02/2025 | 1430/0930 |  US | Philadelphia Fed's Pat Harker | |
| 17/02/2025 | 1520/1020 | US | Fed Governor Michelle Bowman | |
| 17/02/2025 | 2300/1800 | US | Fed Governor Christopher Waller | |
| 18/02/2025 | 0330/1430 | *** | AU | RBA Rate Decision |
| 18/02/2025 | 0700/0700 | *** |  GB | Labour Market Survey |
| 18/02/2025 | 0700/0800 | *** | SE | Inflation Report |
| 18/02/2025 | 0745/0845 | *** |  FR | HICP (f) |
| 18/02/2025 | 0930/0930 | GB | BOE's Bailey fireside chat on open financial markets | |
| 18/02/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 18/02/2025 | 1000/1100 | *** |  DE | ZEW Current Expectations Index |
| 18/02/2025 | - | EU | ECB's De Guindos in ECOFIN meeting | |
| 18/02/2025 | 1330/0830 | *** | CA | CPI |
| 18/02/2025 | 1330/0830 | ** | US | Empire State Manufacturing Survey |
| 18/02/2025 | 1400/0900 | * | CA | CREA Existing Home Sales |
| 18/02/2025 | 1400/1500 | EU | ECB's Cipollone in MNI Connect conference on Balance Sheet | |
| 18/02/2025 | 1500/1000 | ** | US | NAHB Home Builder Index |
| 18/02/2025 | 1520/1020 | US | San Francisco Fed's Mary Daly | |
| 18/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 18/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 18/02/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 52 Week Bill |
| 18/02/2025 | 1800/1300 | US | Fed Governor Michael Barr | |
| 18/02/2025 | 2100/1600 | ** | US | TICS |
| 19/02/2025 | 2350/0850 | ** | JP | Trade |
| 19/02/2025 | 2350/0850 | * | JP | Machinery orders |
| 19/02/2025 | - |  NZ | Reserve Bank of New Zealand Meeting | |
| 19/02/2025 | 0001/0001 | * | GB | Brightmine pay deals for whole economy |
| 19/02/2025 | 0030/1130 | *** | AU | Quarterly wage price index |
| 19/02/2025 | 0100/1400 | *** | NZ | RBNZ official cash rate decision |
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