MNI ASIA OPEN: 10Y Yield Back Over 4%, Awaiting Inflation Data

US Tsys in Holding Pattern Ahead CPI/PPI

• Tsys remain mildly weaker after the bell, near the top end of a narrow range after another quiet data session with markets in a holding pattern ahead CPI/PPI on Thursday/Friday.
• Little reaction in rates following this morning's lower than expected Trade Balance (-$63.2B vs -$64.9B est). Rates appeared to follow EGBs as they drifted off lows following a number of EUR IG supply unwinds.
• Projected rate cuts for early 2024 recovered slightly after unwinding Mon's gains: January 2024 cumulative -1.1bp at 5.318%, March 2024 chance of rate cut -62.0% vs. -57.2% this morning w/ cumulative of -16.6bp at 5.163%, May 2024 chance of cut 86.8% vs. 85.6% this morning, cumulative -38.3bp at 4.946%. Fed terminal at 5.3275% in Jan'24.
• Current TYH4 at 111-29 (-4.5), well inside technicals: Treasuries remain in a short-term corrective cycle. Price has traded through the 20-day EMA and the breach of this average, does suggest potential for a continuation lower near-term. The next key support lies at 110-25+, the 50-day EMA. Moving average studies continue to suggest the medium-term trend direction is up. A recovery would refocus attention on the bull trigger at 113-12, the Dec 27 high.
• Cross asset roundup: WTI Crude Oil (front-month) up $1.4 (1.98%) at $72.16; Gold is up $0.73 (0.04%) at $2028.82; S&P E-Mini Futures down 13 points (-0.27%) at 4787.5.

NEWS

FED (MNI): Banks Need More Reserves For Covering Runs: G30
Banks need to ensure capital levels are high enough to guard themselves and taxpayers against breakdowns such as Silicon Valley Bank and Credit Suisse, the G30 group led by former New York Fed President Bill Dudley said in a report Tuesday.

FED BRIEF (MNI): Barr Says Fed's BTFP Was Established For Emergency
Federal Reserve Vice Chair for Supervision Michael Barr on Tuesday said the central bank's Bank Term Funding Program was established last year as an emergency measure during the banking crisis, potentially suggesting there's limited support to extend the program beyond its current mid-March sunset date despite an uptick in take-up in recent days.

CANADA (MNI): BOC Will Take Time To Cut Rates, Ex Adviser Ragan Says
The Bank of Canada will move slowly to cut interest rates to make sure it gets inflation fully under control, former adviser Chris Ragan said Tuesday, comments coming at a time when some investors are betting on a move as soon as March.

EU BRIEF (MNI): ECB Set To Cut In 2024, Villeroy Says
The European Central Bank is likely to make its first rate cuts of the cycle in 2024, thanks to easing inflation as growth softens, but decisions will be decided solely on the basis of incoming data, Bank of France Governor Francois Villeroy said in a speech on Tuesday.

US (MNI): Schumer Says "World Is Watching" As Congress Gridlocked Over Supplemental
Senate Majority Leader Chuck Schumer (D-NY) has stated on X that, "Democrats are committed to working to pass a national security supplemental package."

SECURITY (MNI): Blinken: US "Continues To Stand With Israel"
US Secretary of State Antony Blinken, speaking at a press conference in Tel Aviv, Israel following a day of meetings with Israeli government officials, has told reporters that the, "immense human toll" Israel experienced on, and after, October 7 is "one of the many reason" the United States, "continues to stand with Israel."

OVERNIGHT DATA

US DATA: The goods & services trade deficit was smaller than expected in November, printing $63.2b (cons $64.9b) after a slightly upward revised $64.5b in Oct, with the narrowing on the month from both goods and services.

• The latest improvement came as both exports and imports fell a seasonally adjusted -1.9% M/M in nominal terms, driven by goods.
• The breakdown of imports shows a notable split: capital goods imports only yielded some of October’s strong increase, an encouraging sign for capex, but consumer goods imports slumped 6.4% M/M to their lowest since Nov’22 and before that Dec’20 as Americans bought fewer foreign-made goods including cellphones in the key shopping month.
• In trend terms, the latest data have made little impact from the -2.7% GDP balance for goods & services, comprised of -3.8% GDP for goods and +1.1% GDP for services.

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA down 191.47 points (-0.51%) at 37492.64
• S&P E-Mini Future down 11.25 points (-0.23%) at 4790.5
• Nasdaq up 2.6 points (0%) at 14846.91
• US 10-Yr yield is down 1.9 bps at 4.0114%
• US Mar 10-Yr futures are down 3/32 at 111-30.5
• EURUSD down 0.0021 (-0.19%) at 1.0929
• USDJPY up 0.21 (0.15%) at 144.44
• WTI Crude Oil (front-month) up $1.4 (1.98%) at $72.16
• Gold is up $0.73 (0.04%) at $2028.82
• European bourses closing levels:
• EuroStoxx 50 down 18.31 points (-0.41%) at 4467.17
• FTSE 100 down 10.23 points (-0.13%) at 7683.96
• German DAX down 28.11 points (-0.17%) at 16688.36
• French CAC 40 down 23.62 points (-0.32%) at 7426.62

US TREASURY FUTURES CLOSE

• 3M10Y -1.6, -138.302 (L: -141.038 / H: -133.798)
• 2Y10Y -0.452, -35.282 (L: -36.975 / H: -33.086)
• 2Y30Y -0.019, -18.552 (L: -20.865 / H: -16.62)
• 5Y30Y +0.277, 20.707 (L: 19.08 / H: 21.806)
• Current futures levels:
• Mar 2-Yr futures down 1.375/32 at 102-22.375 (L: 102-20.625 / H: 102-23.25)
• Mar 5-Yr futures down 2.25/32 at 108-4.25 (L: 107-31.25 / H: 108-06.5)
• Mar 10-Yr futures down 3/32 at 111-30.5 (L: 111-22 / H: 112-02)
• Mar 30-Yr futures down 2/32 at 122-15 (L: 121-26 / H: 122-24)
• Mar Ultra futures down 8/32 at 129-30 (L: 129-04 / H: 130-15)

US 10Y FUTURE TECHS: (H4) Support Remains Exposed

• RES 4: 114-06+ 2.00 proj of the Oct 19 - Nov 3 - Nov 13 price swing
• RES 3: 114-00 Round number resistance
• RES 2: 113-12 High Dec 27 and the bull trigger
• RES 1: 112-19 High Jan 4
• PRICE: 111-29+ @ 1545 ET Jan 09
• SUP 1: 111-06+ Low Jan 05
• SUP 2: 110-27 50-day EMA
• SUP 3: 110-16 Low Dec 13
• SUP 4: 109-31+ Low Dec 11 and a key short-term support

Treasuries remain in a short-term corrective cycle. Price has traded through the 20-day EMA and the breach of this average, does suggest potential for a continuation lower near-term. The next key support lies at 110-25+, the 50-day EMA. Moving average studies continue to suggest the medium-term trend direction is up. A recovery would refocus attention on the bull trigger at 113-12, the Dec 27 high.

SOFR FUTURES CLOSE

• Mar 24 -0.005 at 94.920
• Jun 24 -0.015 at 95.340
• Sep 24 -0.010 at 95.740
• Dec 24 -0.015 at 96.085
• Red Pack (Mar 25-Dec 25) -0.02 to -0.015
• Green Pack (Mar 26-Dec 26) -0.015 to -0.01
• Blue Pack (Mar 27-Dec 27) -0.015 to -0.01
• Gold Pack (Mar 28-Dec 28) -0.015 to -0.01

FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00218 to 5.33553 (-0.00371/wk)
• 3M -0.00230 to 5.32344 (-0.00582/wk)
• 6M -0.01110 to 5.17317 (-0.01967/wk)
• 12M -0.02729 to 4.82052 (-0.03398/wk)

• Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.658T
• Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $672B
• Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $661B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $86B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $253B

FED REVERSE REPO OPERATION, Counterparties Fall to Early Jan 2022 Lows

• RRP usage recedes to $676.050B vs. $691.485B Monday, compares to $664.899B on Thursday, January 4 -- the lowest level since mid-June 2021.
• Meanwhile, the number of counterparties falls to 72 -- the lowest since January 5, 2022.
• Morgan Stanley economists’ "base case is the Fed begins taper in September by $10bn per month for Treasury securities (from a current max runoff of $60bn per month) as the RRP depletes, with an eventual end to QT in February 2025."

PIPELINE $11.1B Corporate Debt Prices Tuesday

• Date $MM Issuer (Priced *, Launch #)
• 1/9 $5B *KFW +5Y +42
• 1/9 $3B #T-Mobile $1B 5Y +90, $1.25B +10Y +117, $750M 31Y +130 (historical comparison: issued $8.5B total over three dates in 2023. T-Mobile, and most other cell companies for that matter, are in the top 20 largest all-time corporate debt issuers, T-Mobile issued $19B spanning 5 tranches on April 2, 2020.
• 1/9 $850M #Liberty Utilities $500M 5Y +160, $350M 10Y +185
• 1/9 $650B #MassMutual 5Y +188
• 1/9 $600M *Corebridge Global Funding 5Y +123
• 1/9 $500M #Penske 3Y +125
• 1/9 $500M #Protective Life 3Y +85a
• Expected Wednesday:
• 1/10 $Benchmark OKB 5Y SOFR+48a
• 1/10 $Benchmark Province of Ontario 5Y SOFR+58a
• 1/10 $Benchmark Sumitomo Life PerpNC10 Investor calls
• 1/10 $Benchmark Asian Infrastructure Investment Bank (AIIB) 5Y SOFR+56a

EGBs-GILTS CASH CLOSE: Bunds Underperform Amid Heavy Supply

Gilts outperformed Bunds Tuesday, as heavy supply took centre stage.

• Supply weighed for most of the morning. Tuesday marked the largest-ever day for European primary market debt issuance (BBG pointed out at least E47bln including corporate paper), including syndications from Italy and Belgium.
• Following syndication pricings, and amid a pullback in oil prices, core EGBs regained ground in mid-afternoon briefly amid some futures block buying but eventually faded toward the cash close.
• The German curve bear flattened on the day, with the UK's twist steepening slightly (20Y Gilt supply was well-received). After a weak start, periphery spreads narrowed by a couple of basis points.
• An uneventful session for data: weak German industrial production data had been telegraphed by Monday's poor factory orders report, while below-expected Eurozone and Italian unemployment rates had little impact.
• ECB's Villeroy speaks after the close, with Wednesday bringing central banker appearances including ECB's Schnabel and Guindos, and BOE's Bailey.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 6.2bps at 2.61%, 5-Yr is up 6.1bps at 2.136%, 10-Yr is up 5.2bps at 2.188%, and 30-Yr is up 5bps at 2.416%.
• UK: The 2-Yr yield is down 0.4bps at 4.211%, 5-Yr is down 0.3bps at 3.727%, 10-Yr is up 1bps at 3.782%, and 30-Yr is up 0.5bps at 4.391%.
• Italian BTP spread down 2.1bps at 166.2bps / Greek down 2.6bps at 113.1bps

FOREX Greenback On Firmer Footing, Notable AUD Weakness

• The greenback strengthened on Tuesday, with the USD index (+0.35%) erasing the prior day’s losses and edging into positive territory on the week. An empty data docket points to the moves being brushed off as short-term positioning adjustments as we approach the key US inflation data later this week.
• AUD steadily faded lower on Thursday, largely ignoring the mid-session rebound for major equity indices, with the moves more generally reflecting the poor backdrop for industrial metals (DCE-listed iron ore futures hit multi-week and YTD lows today). Notably, AUDNZD has broken lower, trading the lowest level since Dec13 and the Fed's dovish pivot. 1.0656 marks the downside level to watch from here.
• Shakier sentiment from China is also key focus, and while expectations are building for fresh policy support from the PBOC (Nomura see PBOC as cutting lending rates as soon as Monday), the anticipated support has failed to prop or reverse the pullback off Dec28's 0.6871 in AUDUSD.
• 0.6678 and $0.6641 provide weak intraday support, but clearance here would place the pair at the lowest level since the Mid-Dec rally. More broadly, the formation of a golden cross in DMA space (50- rising above the 200-dma) should prove positive if the current pullback is confirmed as corrective in nature.
• In similar vein, the Swiss Franc is also populating the bottom-end of the G10 table, with the persistent slide in EURCHF and USDCHF stalling at the beginning of 2024. Weakness in CHF comes despite the firmer-than-expected Dec CPI release earlier this week.
• Australian CPI is the key data release on Wednesday, with potential comments from Bank of England Governor Andrew Bailey and a 10-yr treasury auction the only other notable risk events for the rest of the session.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
10/01/2024	0030/1130	***		AU	CPI Inflation Monthly
10/01/2024	0700/0800	***		NO	CPI Norway
10/01/2024	0700/0800	**		SE	Retail Sales
10/01/2024	0700/0800	**		SE	Private Sector Production m/m
10/01/2024	0745/0845	*		FR	Industrial Production
10/01/2024	0800/0900			EU	ECB's De Guindos speech at Spain Investor Day
10/01/2024	0900/1000	*		IT	Retail Sales
10/01/2024	1000/1000	**		UK	Gilt Outright Auction Result
10/01/2024	1200/0700	**		US	MBA Weekly Applications Index
10/01/2024	-	***		CN	Money Supply
10/01/2024	-	***		CN	New Loans
10/01/2024	-	***		CN	Social Financing
10/01/2024	1415/1415			UK	Treasury Select Hearing on FSR
10/01/2024	1500/1000	**		US	Wholesale Trade
10/01/2024	1530/1030	**		US	DOE Weekly Crude Oil Stocks
10/01/2024	1800/1300	**		US	US Note 10 Year Treasury Auction Result
10/01/2024	2015/1515			US	New York Fed's John Williams