HIGHLIGHTS
- Treasuries see-sawed lower Friday after briefly climbing to session highs this morning, curves steeper with short end rates outperforming.
- Wholesale Inventories came out lower than expected w/ modest down-revision to prior, Retail Inventories in-line with expectations while Advanced Goods Trade Balance came out a little wider than October's.
- EGBs traded weaker as energy prices gained after Russian President Putin suggested gas flows through Ukraine might not continue into the new year.
MNI US TSYS: Tsy Yields Rising to May'25 Highs, Year End Focus
- Treasuries look to finish mostly lower Friday -- back near late overnight lows after briefly recovering this morning. Light holiday volumes persisted with the Mar'25 10Y contract just over 745k into the close on a 10-tic range.
- TYH5 trades 108-13 (-8) at the moment, Tsy 10Y yield climbed to 4.6213% (+.0386bp) - highest since late May'24.
- Tsy curves forged steeper as the short end outperformed: 2s10s +4.274 at 29.303, 5s30s +1.979 at 35.496. Short end bid helped projected rate cuts into early 2025 gain slightly vs. this morning levels (*) as follows: Jan'25 steady at -2.7bp, Mar'25 -13.3bp (-13.1bp), May'25 -18.5bp (-17.7bp), Jun'25 -26.5bp (-25.7bp).
- Treasury futures slowly pared losses after this morning's Wholesale Inventories came out lower than expected w/ modest down-revision to prior, Retail Inventories in-line with expectations while Advanced Goods Trade Balance came out a little wider than October's, with the $102.9B shortfall above $98.3B prior ( and $101.2B expected).
- Markets closed next Wednesday for New Years day, otherwise full sessions for the balance of the week. Data includes MNI PMI and Pending Home Sales Monday, FHFA housing data on Tuesday, weekly claims and construction spending Thursday followed by ISMs on Friday.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.01237 to 4.35701 (+0.02047/wk)
- 3M +0.00412 to 4.32878 (+0.00136/wk)
- 6M +0.00284 to 4.28493 (+0.00872/wk)
- 12M -0.00095 to 4.23931 (+0.01534/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.53% (+0.13), volume: $2.320T
- Broad General Collateral Rate (BGCR): 4.50% (+0.11), volume: $867B
- Tri-Party General Collateral Rate (TGCR): 4.50% (+0.11), volume: $814B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $128B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $261B
FED Reverse Repo Operation - Usage Surge Ahead Year End
RRP usage surged to $268.739B this afternoon from $196.818B Thursday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties climbs to 63 from 54 prior.
US SOFR/TREASURY OPTION SUMMARY
Decent SOFR & Treasury option flow leaned towards low delta Tsy puts while SOFR options focused on upside calls as short end rates rebounded, helping projected rate cuts into early 2025 gain slightly vs. this morning levels (*) as follows: Jan'25 steady at -2.7bp, Mar'25 -13.3bp (-13.1bp), May'25 -18.5bp (-17.7bp), Jun'25 -26.5bp (-25.7bp).
SOFR Options:
Screen/Block +60,000 SFRM5 96.12/96.62 call spds 3.0-3.25 over 95.56 puts vs. 95.92/0.36%
+5,000 SFRH5 96.00 calls, 4.0 vs. 95.81/0.24%
+3,000 0QF5/0QH5 96.00/96.12/96.25 call tree strip, 10.5 total (+1 leg 0QF, +2 legs 0QH)
+2,500 0QH5 96.00/96.50 1x2 call spds, 7.5 vs. 95.995/0.14%
+2,500 SFRH5 96.25 calls, 2.25 ref 95.815
-2,500 SFRG5/SFRH5 96.00 call strip, 6.0 vs. 95.80/0.38%
-3,000 SFRZ5 96.00 puts, 39.0 vs. 95.995/0.50%
+2,500 SFRZ5 95.61/96.12 2x1 put spds, 2.0 ref 96.01
+2,000 0QH5 96.00 puts. 22.0 vs. 95.995/0.51%
+5,000 SFRM5 96.62/96.87 call spds, 1.5 vs. 95.91
+5,000 SFRM5 98.00 calls, 1.5
+2,500 SFRJ5 96.00/96.50 call spds, 8.0
2,400 SFRU5 96.12 calls ref 95.96
1,000 0QF5 95.87/96.00/96.12/96.25 put condors ref 95.99
4,000 0QH5 96.12/96.37 call spds ref 95.98
1,000 0QH5 95.37/95.50/95.75 broken put flys
Treasury Options:
2,500 TYG5 111/111.5 call spds ref 108-18
2,100 FVG5 107/108 call spds ref 106-03.75
1,000 USG5 122/125 1x2 call spds
over 5,800 TYG5 104 puts, 3 ref 108-16.5
over 4,400 TYF5 108.5 puts, 5 last
over 4,200 TYF5 108.25 puts, 1 last
3,200 TYG5 104 puts, 3 last
3,000 TYG5 111/112 call spds ref 108-21.5
2,500 FVF5 106.25 calls, 1 ref 106-04.5
MNI BONDS: EGBs-GILTS CASH CLOSE: Steepening Selloff Resumes Post-Holiday
European yields rose Friday in the return to trading from the Christmas holidays, with periphery EGB spreads tightening as Bunds underperformed Gilts.
- Much of the initial weakness in the re-open was due to catch-up with US Treasuries (both pre-and post-Dec 24/25 trade) after the reopen
- But EGBs also suffered from higher energy prices after Russian President Putin suggested gas flows through Ukraine might not continue into the new year.
- The UK and German curves bear steepened on the day; German 2s10s are now at the steepest since October 2022. 10Y Bund yields held below the 2.40% level but saw their highest close in 6 weeks, and Gilts the highest since Oct 2023.
- BTPs led relative strength in periphery EGBs, with 10Y/Bund touching the tightest levels since Dec 16.
- Monday's schedule features Spanish and Portuguese flash December CPI, to kick off the extended Eurozone inflation reporting round (the EZ print is on Jan 7).
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 4.3bps at 2.1%, 5-Yr is up 6.4bps at 2.19%, 10-Yr is up 7.3bps at 2.396%, and 30-Yr is up 7.4bps at 2.627%.
- UK: The 2-Yr yield is up 5.5bps at 4.465%, 5-Yr is up 5.8bps at 4.407%, 10-Yr is up 5.8bps at 4.633%, and 30-Yr is up 4.1bps at 5.182%.
- Italian BTP spread down 2.2bps at 114.7bps / French OAT down 0.3bps at 81.2bps
MNI OPTIONS: Bund Options Feature In Return To Trading Friday
Friday's Europe rates/bond options flow included:
- RXG5 133.00 puts 1,267 lots blocked at 83, followed by 1,266 lots blocked at 84. Price action points to a buyer
- RXG5 133.50/135.00 call spread 4K blocked across 39 & 40 (2K each), looks a buyer of the call spread
MNI FOREX: Currency Markets Brush Off Weaker Equity Sentiment
- Despite some sharp weakness for major equity indices on Friday, currency markets remained largely unfazed. A tight 33 pip range for the USD index is evidence of this, with the DXY little changed on the session.
- Weaker risk sentiment has moderately weighed on the Australian dollar, keeping AUD/USD firmly on course for a test of 0.6199, the cycle low. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. Scope is seen for an extension towards 0.6158 next, a Fibonacci projection.
- In contrast, GBP is among the best performers in G10 and showed strength into the WMR fix, potentially buoyed by value date month/year-end flows. The trend structure in GBPUSD remains bearish and today’s bounce appears technically corrective. Initial resistance is at 1.2621, the 20-day EMA.
- In emerging markets, USDMXN had a brief spell of strength on the pessimistic price action in equity markets, rising to 20.40 before sharply reversing course back to 20.20 as any FX market momentum quickly waned.
- Separately, month-end USD demand by importers and ongoing concerns over India’s widening trade deficit pressured the rupee to a fresh record low, with USD/INR’s rise of as much as ~0.5% earlier on in the session its steepest since February 2023. Rallying spot was accompanied by a sharp rise in implied vols, with 1-month vols nearing 4% and currently at its highest levels since August 2023. According to Reuters, the rupee was hurt today by “persistently strong dollar demand” in the NDF market while likely intervention by the RBI capped the currency's losses.
MNI US STOCKS: Late Equities Roundup: Off Midday Lows, Energy Outperforms
- Major averages look to finish lower Friday but off early week lows as markets set their sites on the fast approaching year end. Currently, the DJIA trades down 318.56 points (-0.74%) at 43006.93, S&P E-Minis down 72.5 points (-1.19%) at 6022.5, Nasdaq down 322.3 points (-1.6%) at 19698.39.
- Consumer Discretionary and Information Technology sectors continued to underperform in late trade, autos and cruise lines traded weaker for the second day running: Tesla -5.02%, Norwegian -2.73%, Carnival -2.49% and Royal Caribbean -2.25%.
- Semiconductor shares weighing on the IT sector: Super Micro Computers -4.95%, Palantir Technologies -3.75%, Crowdstrike -2.54% while Nvidia declined 2.44%.
- Conversely, Energy and Utilities sectors outperformed led gainers in late trade, oil & gas shares supported by a rebound in crude prices (WTI +0.50 at 70.12): APA +0.96%, EQT and Occidental +0.75%, Phillips 66 +0.76%. Meanwhile, multi-energy providers outperformed with Dominion Energy +0.48%, American Electric +0.47%, the Southern Co +0.39%.
- Looking ahead, the next round of quarterly earnings kicks off mid-January with Blackrock, Bank of NY Melon, Wells Fargo, JP Morgan, Goldman Sachs, Citigroup, US Bancorp, M&T Bank and PNC all reporting between January 13-16.
A sell-off in the S&P E-Minis contract on Dec 18 highlights a S/T top and a corrective cycle. The move down resulted in a breach of the 20- and 50-day EMAs. A resumption of weakness would open 5811.65, 38.2% of the Aug 5 - Dec 6 bull leg. Support at 5921.00, Nov 19 low, has been pierced. A clear break of it would strengthen a bearish threat. Initial resistance is 6064.86, the 20-day EMA. A clear break of the EMA would be a bullish development.
MONDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 30/12/2024 | 0800/0900 | *** |  ES | HICP (p) |
| 30/12/2024 | 0800/0900 | ** |  CH | KOF Economic Barometer |
| 30/12/2024 | 1445/0945 | *** |  US | MNI Chicago PMI |
| 30/12/2024 | 1500/1000 | ** | US | NAR Pending Home Sales |
| 30/12/2024 | 1530/1030 | ** | US | Dallas Fed manufacturing survey |
| 30/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 30/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 30/12/2024 | 1800/1300 | * | US | US Treasury Auction Result for Cash Management Bill |
| 31/12/2024 | 0130/0930 | *** |  CN | CFLP Manufacturing PMI |
| 31/12/2024 | 0130/0930 | ** | CN | CFLP Non-Manufacturing PMI |