HIGHLIGHTS
- Treasuries gradually extended lows through the session, TYH5 briefly trading through initial technical support of 108-16.5 (Dec 19 low) to 108-15.
- Sell pressure appeared independent of flurry of US data and surge of Treasury bill auctions, including a $69B 2Y note sale ahead of Tuesday's early Christmas eve/Wednesday Christmas closings.
- While 10Y yield climbed to 4.5966% high, stocks mad a nice recovery off early session lows, led by semiconductor makers and interactive media shares ahead of the holiday.
MNI US TSYS: TYH5 Briefly Through Technical Support, Yield Taps 4.5966% High
- Treasury futures continue to extend the low end of the day's range in late trade, TYH5 briefly traded through 108-16.5 support before bouncing to 108-17 after the bell. Curves steeper with short end rates outperforming (2s10s now at 25.015 vs. 19.960 low) - despite late 2s5s flattener block in late trade: 17,300 TUH5 102-21.38, slightly through the 102-21.25 post time offer vs. 15,300 FVH5 106-04.37, well through the 106-03.75 post time offer.
- Meanwhile, projected rate cuts into early 2025 look steady to slightly lower vs. this morning (*) as follows: Jan'25 steady at -2.1bp, Mar'25 -11.7bp (-13.7bp), May'25 -16.0bp (-18.8bp), Jun'25 -23.4bp (-25.3bp).
- Little reaction to a flurry of mixed data: November posted improved home sales figures compared with a soft October, but revised New home sales came in roughly as expected at 664k on a seasonally-adjusted annualized rate, up from 627k prior (upwardly revised from 610k), following on from data showing a 4.8% M/M increase in existing home sales in November to the highest level since March at 4.15M.
- Headline durable goods orders figure of -1.1% M/M, the "miss" vs -0.3% expected was offset by an upward revision to the prior growth reading to 0.8% from 0.3%. Transportation equipment - a typically volatile category - led the decline, falling -2.9% M/M, with nondefense aircraft/parts down 7.0%.
- Tsy $69B 2Y note auction (91282CME8) came out on the screws: 4.335% high yield vs. 4.335% WI; 2.73x bid-to-cover vs. 2.77x prior. Tuesday sees Tsy $28B 2Y FRN & $70B 5Y Note auctions.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00220 to 4.33874
- 3M -0.00148 to 4.32594
- 6M -0.00462 to 4.27159
- 12M -0.01309 to 4.21088
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.30% (+0.00), volume: $2.330T
- Broad General Collateral Rate (BGCR): 4.28% (+0.02), volume: $849B
- Tri-Party General Collateral Rate (TGCR): 4.28% (+0.02), volume: $817B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $113B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $272B
FED Reverse Repo Operation
RRP usage climbs to $116.004B this afternoon from $98.356B last Friday - the lowest level since mid-April 2021. The number of counterparties climbs to 47 from 40 prior.
US SOFR/TREASURY OPTION SUMMARY
Option desks reported a modest pick-up in SOFR & Treasury put options in the second half while underlying futures continue to extend the low end of the day's range. Curves steeper with short end rates outperforming (2s10s now at 24.813 vs. 19.960 low), while projected rate cuts into early 2025 look steady to slightly lower vs. this morning (*) as follows: Jan'25 steady at -2.1bp, Mar'25 -11.7bp (-13.7bp), May'25 -16.0bp (-18.8bp), Jun'25 -23.4bp (-25.3bp).
SOFR Options:
+10,000 SFRU5 95.62/95.81 call spds 1.0-1.25 over 96.06/96.31 call spds
+7,500 SFRZ5 96.50/97.00/97.50/98.00 call condors 6.0 ref 95.97
-5,000 SFRJ5 95.81 puts 7.75-8.0 over the 95.87/96.12/96.37 call fly
4,900 SFRM5 96.12/96.37 call spds ref 95.89
2,300 SFRM5 96.50/96.62 call spds ref 95.89
1,300 SFRU5 96.00/96.18 call spds vs. 95.37 puts ref 95.955
Treasury Options:
10,000 TYF5 108.25/108.5 put spds 4 ref 108-19
-5,000 USF5 113/113.5 put spds 9 ref 113-27
-12,000 TYG5 111 calls, 9 ref 108-23.5
4,250 TYG5 108 puts, 30 ref 108-24.5
over +56,500 TYG5 104 puts, 3 ref 108-26.5
1,500 TYG5 103.5/107.5 put spds vs. 112 calls ref 108-25.5
2,600 TYG5 103 puts, 2 ref 108-26.5
2,300 TYH5 114 calls, ref 108-26.5
2,100 FVH5 106.25 calls ref 106-07.75
2,500 TYG5 113 calls
MNI BONDS: EGBs-GILTS CASH CLOSE: Yields Head Higher Pre-Holiday
Bund and Gilt yields continued their ascent Monday.
- Core European FI dipped in the return from the weekend, with some pointing to commentary by ECB President Lagarde (telling the FT: "We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%"). OIS-implied ECB rates ticked only marginally higher, though.
- Bunds and Gilts would regain ground as oil prices faded and concerns over US-China trade tariffs simmered, but were weighed down by Treasuries toward the European cash close, with pre-Christmas US supply (2Y and 5Y today and Wednesday) eyed as a factor.
- There was little reaction to an unexpected softening in Q3 UK GDP in the final reading (0.1pp to 0.0%).
- Liquidity was thinned on account of the holidays, with Bund futures volumes at around 55% of typical recent levels.
- UK and German yields closed higher more or less in parallel, with the German short-end slightly outperforming.
- OATs underperformed, with French PM Bayrou set to unveil a new cabinet at 1730GMT/1830 local.
- There is a dearth of scheduled events Tuesday amid a limited session and ahead of Wednesday's holiday market closure.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 3bps at 2.057%, 5-Yr is up 3.8bps at 2.127%, 10-Yr is up 3.8bps at 2.323%, and 30-Yr is up 3.5bps at 2.553%.
- UK: The 2-Yr yield is up 3.4bps at 4.381%, 5-Yr is up 3.6bps at 4.326%, 10-Yr is up 3.6bps at 4.546%, and 30-Yr is up 4.9bps at 5.099%.
- Italian BTP spread up 0.9bps at 116.9bps / French OAT up 1.1bps at 81.5bps
EGB OPTIONS: Upside In RX, Mixed Euro Rates Monday
Monday's Europe rates/bond options flow included:
- RXG5 136/137 call spread paper paid 11 on 4.5K.
- 2x ERG5 98.25 calls lifted vs. 1x ERF5 97.87 calls, with paper paying 1.0 on 6.25K for the G5. ERH5 last 97.705
- ERH5 97.50/98.25 combo paper paid 1 on 6K, buying the puts to sell the calls.
- ERM5 98.12/50 call spread 10K given at 7.75/7.5
MNI FOREX: USD Holds Firmer in Thin Trade
- The USD gained in thin trade on Monday, with volumes light and participation muted given the proximity to market closures on Dec24 for the holiday period. The USD Index retook the 108.00 handle after early weakness, keeping the cycle high and bull trigger within range at 108.541. Thinner markets were encapsulated by the soft volumes across currency futures posted Monday, evident in EUR futures trade holding over 25% below average, JPY futures 45% below average and GBP futures over 30% below expectations.
- Despite slippage into the Friday close, USDCAD remains well toward the upper-end of the recent range, with 1.4467 the initial target ahead of 1.4508 - the 3.236 proj of the Oct 17 - Nov 1 - 6 price swing. CAD GDP data did little to cap USD/CAD gains today, as political uncertainty (including the building argument within the Liberal Party for Trudeau to step down as prime minister. BoC minutes are due later today - covering the Dec11 rate decision at which the bank cut the lending rate by 50bps to 3.25%. Key for the release could be any expansion of the communications from the closing paragraphs of the Dec policy statement; that the BoC "will be evaluating the need for further reductions in the policy rate".
- The grind higher in US Treasury yields at the NY crossover added extra weight to GBP/USD, which ebbed lower slowly, but surely, over the European morning. The revision lower for Q3 GDP (down to flat for Q3) won't be helping, but the decline was been largely USD-led. The fade in the pair is still well clear of the Friday low, however prices are now back below the 1.2533 support - the 23.6% retracement for the post-Fed slip lower in the pair. Support seen more significant into 1.2476.
- The schedule Tuesday is understandably quiet, with many European markets closed, and an early close for UK assets. Markets don't return in earnest until Friday, Dec27.
MNI US STOCKS: Late Equities Roundup: Chip Stocks, Interactive Media Helps Rebound
- Information Technology and Communication Services sectors continued to outperform Monday, helping major averages climb off this morning's lows, S&P Eminis nearing last Friday's early highs. Currently, the DJIA trades down 41.8 points (-0.1%) at 42801.29, S&P E-Minis up 24.25 points (0.4%) at 6026.5, Nasdaq up 170.5 points (0.9%) at 19744.49.
- Semiconductor makers continued to lead gainers in the second half with Broadcom gaining 5.39%, Advanced Micro Devices +4.75% after Rosenblatt named AMD, Meta and Micron as it's top picks for the first half of 2025. Meanwhile, Microchip Technology +4.07%, Monolithic Power +3.99% while Nvidia and Intel gained 3.50% and 3.40% respectively.
- Interactive media and entertainment shares buoyed the Communication Services sector with the aforementioned Meta gaining 2.46%, Alphabet +1.58%, News Corp +0.854%.
- Consumer Staples and Materials sectors continued to underperform in the second half, retail distribution shares lagging into the Christmas holiday: Walgreens Boots Alliance -3.30%, Dollar General -3.14%, Walmart -2.16%.
- Chemicals and mining shares weighed on the Mining sector: International Flavors & Fragrances -1.47%, FMC Corp and Corteva both -1.55%, while Newmont traded -0.47%.
MNI EQUITY TECHS: E-MINI S&P: (H5) Monitoring Resistance At The 20-Day EMA
- RES 4: 6178.75 High Dec 6 and key resistance
- RES 3: 6163.75 High Dec 16
- RES 2: 6067.90 20-day EMA
- RES 1: 6050.75 High Dec 20
- PRICE: 5993.75 @ 14:21 GMT Dec 23
- SUP 1: 5866.00 Low Dec 20
- SUP 2: 5811.65 38.2% retracement of the Aug 5 - Dec 6 bull leg
- SUP 3: 5784.00 Low Nov 4
- SUP 4: 5698.25 50.0% retracement of the Aug 5 - Dec 6 bull leg
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 6067.90, the 20-day EMA. A clear break of the EMA would be a bullish development.
MNI COMMODITIES: Crude, Gold Dip Amid Stronger Dollar
- Crude has edged lower today, with pressure from a stronger USD dollar as the market quietens down towards the Christmas period.
- WTI Feb 25 is down by 0.2% at $69.3/bbl.
- Earlier, Roi Kais at Kan reported on X, per Saudi-owned Al-Sharq TV channel, that "there is significant progress," toward a Gaza ceasefire-for-hostage deal, "but there are still issues in dispute."
- A bearish threat in WTI futures remains present and sights are still on $65.57, the Oct 1 low, and $63.73, the Sep 10 low and key support. Initial firm resistance to watch is unchanged at $71.97, the Nov 7 high.
- Meanwhile, spot gold has declined by 0.5% today to $2,611/oz.
- The sharp move lower in gold last week undermined the recent bullish theme, and a resumption of weakness would signal scope for an extension towards the key support at $2,536.9, the Nov 14 low.
- However, moving average studies are in a bull mode position highlighting a medium-term uptrend and this suggests that the recent sell-off is likely a correction. Initial pivot resistance is $2,639.9, the 20-day EMA.
- Copper has also dipped by 0.2% to $409/lb, keeping the red metal close to its lowest levels since last August.
- A bearish trend condition in copper futures is intact, with attention on $401.35, the Aug 7 low and a bear trigger.
TUESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 24/12/2024 | 1330/0830 | ** |  US | Philadelphia Fed Nonmanufacturing Index |
| 24/12/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 24/12/2024 | 1500/1000 | ** | US | Richmond Fed Survey |
| 24/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 5 Year Note |
| 24/12/2024 | 1630/1130 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |