MNI ASIA MARKETS ANALYSIS: Yields Rise Ahead Dec FOMC Minutes

US Corporate Bond Issuance Anchored Tsys, Focus on Wednesday FOMC Minutes

• Still weaker, Tsy futures pared losses after month-over-month Construction Spending comes out lower than expected: 0.4% vs. 0.5% est), and S&P Global US Manufacturing PMI comes out lower than expected (47.9 vs. 48.4 est) this morning.
• From the press release: “Output fell at the fastest rate for six months as the recent order book decline intensified”, with manufacturing likely have acted as a drag on the economy in Q4.
• Corporate debt issuance returned from a three week hiatus with over $30B issuing today, corporate rate locks kept a lid Treasury futures across the curve.
• Treasury futures are well within technical levels after the close: support at 111-31+/111-23+ (Low Dec 14 / 20-day EMA); resistance well above at 113-12+ 1.764 proj of the Oct 19 - Nov 3 - Nov 13 price swing.
• Wednesday Data Calendar: ISMs, JOLTS, December FOMC Minutes.

FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00628 to 5.34844 (-0.00064 total last wk)
• 3M -0.00407 to 5.32733 (-0.01971 total last wk)
• 6M -0.00461 to 5.15311 (-0.02954 total last wk)
• 12M -0.00091 to 4.77007 (-0.03171 total last wk)

• Secured Overnight Financing Rate (SOFR): 5.38% (-0.02), volume: $1.702T
• Broad General Collateral Rate (BGCR): 5.33% (-0.02), volume: $611B
• Tri-Party General Collateral Rate (TGCR): 5.33% (-0.02), volume: $594B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $59B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $110B

FED REVERSE REPO OPERATION:

• After climbing back over $1T last Friday, RRP usage collapses back near mid-December lows with $704.064B vs. $1,018.483B on Friday. Latest level compares December 15 when usage fell to the lowest level since mid-June 2021: $683.254B.
• The number of counterparties falls to the lowest level since early April 2022 with 78 vs. 102 in the prior session.

SOFR/TREASURY OPTION SUMMARY

SOFR options kicked off 2024 leaning toward limited upside call flys and condors Tuesday. Underlying futures weaker, current levels back near December 13 post-FOMC highs (TYH4 currently -19 at 112-09.5 vs. 112-04 low). Projected rate cuts for early 2024 recedes slightly: January 2024 cumulative -2.6bp at 5.302%, March 2024 chance of rate cut -77.5% vs. -84.3% last Friday w/ cumulative of -22bp at 5.109%, May 2024 still pricing in a full 25bp cut with cumulative -46.9bp at 4.859%, June'24 cumulative -72.2bp at 4.607%. Fed terminal at 5.33% in Jan'24.

• SOFR Options:
  • +5,000 SFRH4 95.12/95.37 call spds, 3.0 ref 94.975
  • +2,250 SFRG4 94.75 calls, 23.5 ref 94.975
  • Block: 5,000 SFRJ4 94.62/95.00/95.25/95.37 put condors, 2.25 ref 95.415
  • 4,000 SFRH4 97.00/97.25 put spds
  • Block, 5,000 SFRM4 95.43/95.56 call spds, 4.75 ref 95.435/0.07%
  • +5,000 SFRM4 95.43/95.56 call spds 4.75
  • +10,000 SFRM4 94.93/95.12 2x1 put spds, 1.5 cr
  • 4,000 0QG4 96.75 calls ref 96.46
  • 13,000 SFRH4 94.81/94.93/95.06/95.18 call condors
  • 2,500 SFRH4 95.00/95.25/95.43 broken call flys ref 94.975
  • Update, 8,000 SFRU4 96.00/96.50/97.00 call flys ref 95.845
  • 2,000 SFRU4 95.50/0QU4 96.50 put spds
  • 1,500 SFRM4 95.25/95.50/95.87/96.12 call condors, ref 95.44
  • 3,500 SFRM4 95.25/95.37/96.00/96.12 call condors ref 95.44
  • 1,500 SFRM4 95.00/95.75/96.50 call flys ref 95.435
  • 1,250 SFRH4 94.62/94.75/94.87 put flys, ref 94.98
  • 1,250 SFRH4 94.68/94.75/94.81/94.87 call condors ref 94.975
• Treasury Options:
  • 2,000 TYG4 112 puts, 46 ref 112-09/0.44%
  • 2,800 TYH4 115 calls, 28 ref 112-11.5/0.22%

EGBs-GILTS CASH CLOSE: Yields Retrace Higher To Open The Year

European bonds weakened to start 2024, though yields finished off session highs.

• Some of the late 2023 bullishness in rates corrected at the open. As trading picked up following the holiday period, the weakness continued, spurred in part by a 3+% jump in oil prices.
• The oil rise completely reversed later in the session, helping yields retrace lower in the afternoon.
• Gilts underperformed Bunds on the day, with the UK curve bear steepening (+6 to 12bp) and Germany's fairly flat (+4 to 5bp).
• Periphery spreads were mostly tighter, with Italy outperforming and Portugal lagging.
• Manufacturing PMIs for December were final for the UK and Eurozone, with the readings for Italy beating and Spain missing - none moved the needle. Eurozone M3 / lending data was largely in line.
• Wednesday's slate is light, with Spanish and German labour market featuring. Germany sells Schatz, while syndication for a new 10Y EUR Slovenian benchmark looks likely to be conducted.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 4.8bps at 2.452%, 5-Yr is up 4.3bps at 1.991%, 10-Yr is up 4.1bps at 2.065%, and 30-Yr is up 4.7bps at 2.31%.
• UK: The 2-Yr yield is up 6.6bps at 4.05%, 5-Yr is up 7.6bps at 3.539%, 10-Yr is up 9.7bps at 3.634%, and 30-Yr is up 12.3bps at 4.265%.
• Italian BTP spread down 2.9bps at 164.7bps / Portuguese up 0.6bps at 63.8bps

EGB Options: New Year Starts With Mostly Downside In Bund

Tuesday's Europe rates/bond options flow included:

• RXG4 129p, bought for 3 in 6k
• RXG4 136.50/137.50cs sold at 43 in 4k
• RXG4 134/132ps, bought for 28 and 30 in ~4.9k
• ERH4 96.37/96.25/96.12p fly, bought for 3.25 in 3k

FOREX: Greenback Trades On Firmer Footing Amid Higher Core Yields

• Both European and US bonds weakened to start 2024, and despite yields finishing off session highs, price action has worked in favour of the greenback with a notable 0.85% recovery for the USD index.
• Weakness for major equity and a significant reversal lower for oil have bolstered the dollar bid, which now sees the DXY over 1.5% above last week’s lows.
• Underperforming in the G10 currency space are the New Zealand dollar and the Swiss Franc, both declining around 1.1%, however, losses have been broad based. As such, EURUSD has slipped back below 1.0950 and USDJPY hovers just below 142.00 after printing a 142.21 high around the new York crossover.
• CHF has reversed a small part of the impressive rally into the end of 2023. USD/CHF is around 175 pips off the 2023 and cycle low, however CHF weakness looks technically corrective in nature the longer USDCHF fails to break back above 0.8549.
• AUD has been a marginal outperformer on a relative basis, with technical conditions for AUDUSD remaining firmly in bullish territory and short-term weakness considered corrective. Despite today’s pullback, sights are on 0.6900, the Jun 16 high and the next key resistance. On the downside, Initial firm support is at 0.6714, the 20-day EMA.
• Spanish and German unemployment data will cross on Wednesday, along with Swiss manufacturing PMI. A busy data docket in the US will be highlighted by ISM Manufacturing figures and November JOLTS data. The minutes of the Federal Reserve’s December meeting will also be released.

Late Equity Roundup: Near Lows, Nasdaq Underperforming

• Stocks are back near midmorning lows in late trade, Nasdaq underperforming while Dow Industrials reverse midday gains. Information Technology and Communication Services sector shares weighing. At the moment: the DJIA is down 50.61 points (-0.13%) at 37641.25, S&P E-Mini future are down 44.5 points (-0.92%) at 4775.5, Nasdaq down 277.9 points (-1.9%) at 14733.02.
• Laggers: Information Technology and Communication Service sector shares underperformed, hardware and semiconductor stocks weighing on the former: AMD -6.1%, Intel -4.8%, Apple -4.18%, Seagate -2.75%. Meanwhile, Media and entertainment shares weighed on Communication Services: Netflix -4.5%, Meta -2.77%, Paramount -2.47%.
• Leading gainers: Health Care and Energy sector shares outperformed in late morning trade, biotechnology shares leading the former: Moderna surged +13.23% after Oppenheimer upgraded the stock to outperform while the vaccine maker's CEO reiterated the company's goal of achieving sales growth in 2025, Reuters reported. Other leaders included Viatris +4.76% and Pfizer +3.96%. Meanwhile, oil and gas stocks buoyed the former: Exxon Mobil +2.57%, Pioneer Natural Resources +2.56%, Marathon Petroleum +2.43%.
• Reminder, the next quarterly earnings cycle starts in earnest next week Friday with UnitedHealth, BlackRock, Bank of America, Wells Fargo, JPMorgan, Citigroup and Bank of NY Mellon.

COMMODITIES Crude Oil and Gold Reverse Earlier Geopolitically Driven Increases

• Crude futures have seen a day of two halves, first rising with risk from hightened Middle East tensions following attacks on shipping by Houthi rebels in Yemen before sharply sliding. Strong supplies from US and Russia are also likely acting as an offset to earlier strength.
• OPEC+ plans to hold the next Joint Ministerial Monitoring Committee meeting (JMMC) in the first week of February, delegates told Bloomberg.
• Maersk has again suspended all Red Sea transit with ships diverted around southern Africa in response to the latest Houthi attack.
• Russia’s seaborne crude exports finished 2023 with a four-week average of 3.46m b/d, the highest since early November, according to Bloomberg.
• WTI is -1.6% at $70.52 having pushed through support at $70.99 (Dec 18 low) after which lies $67.98 (Dec 13 low).
• Brent is -1.3% at $76.05 off a low of $75.60 which pushed through $76.00 (Dec 18 low) to open $72.67 (Dec 13 low).
• Gold is -0.1% at $2060.82 having come under increasing pressure and reversed earlier gains as the USD index gained strength through the session. It remains firmly above support at $2034.6 (20-day EMA).

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
03/01/2024	0855/0955	**		DE	Unemployment
03/01/2024	1200/0700	**		US	MBA Weekly Applications Index
03/01/2024	-	***		US	Domestic-Made Vehicle Sales
03/01/2024	1330/0830			US	Richmond Fed's Tom Barkin
03/01/2024	1355/0855	**		US	Redbook Retail Sales Index
03/01/2024	1500/1000	***		US	ISM Manufacturing Index
03/01/2024	1500/1000	***		US	JOLTS jobs opening level
03/01/2024	1500/1000	***		US	JOLTS quits Rate
03/01/2024	1900/1400	***		US	FOMC Minutes