MNI ASIA OPEN: No Twist, No (Yld Curve) Control

EXECUTIVE SUMMARY

• MNI EXCLUSIVE: Fed Targets EPOP Rebound, Sees Little Scarring
• MNI BRIEF: Evans Says Spell of 3% Inflation May Not Be Problem
• MNI BRIEF: Fed's Evans Says Yield Rise Mirrors Better Outlook
• SCHUMER: AS EARLY AS TONIGHT SENATE WILL MOVE TO TAKE UP RELIEF
• SUNAK: EXPECT ECONOMY TO RETURN TO PRE-COVID GDP IN MID NEXT YR
  
• CHICAGO FED EVANS: SEES UNEMPLOYMENT CLOSER TO 5% BY END OF THE YEAR, Bbg

US

FED: Chicago Federal Reserve President Charles Evans said Wednesday there's little evidence that inflation will badly overshoot says the central bank's 2% goal and the bigger challenge is overcoming a much longer history of price gains lagging the target.

FED: Chicago Federal Reserve President Charles Evans said Wednesday the "longer sweep" behind the recent rise in Treasury bond yields reflects a brighter economic outlook, joining his colleagues in putting less emphasis on the surge than some bond investors who are betting on inflation.

• U.S. and German 10-year bond yields have climbed on signs of a successful vaccine rollout and a shift away from intense demand for safe assets, Evans told reporters after a speech. The yield rise may also reflect different thinking on inflation, he said.

FED: Federal Reserve officials are determined to regain pre-Covid levels of labor force participation despite concerns pandemic disruption has reduced the ability of the economy to create jobs, likely extending the period needed for interest rates to stay ultra-low to reach employment goals, current and former Fed economists told MNI.

• Policymakers remain optimistic most of the millions who have exited the workforce during Covid will be pulled back once life returns to normal later this year, with easy monetary policy generating opportunities for those hit hardest, in particular women, blacks and Hispanics, sources said. For more see MNI Policy main wire at 0921ET.

US TSYS: Twist 3.0 Chatter? Don't Count On It
Last week's massive consolidation on Tsy futures spurred speculation over chance of potential for yield curve control or other measure due to spike in yields. With the Fed going into blackout Friday at midnight -- the addition of Fed Chair Powel (WSJ event to discuss US economy at 1205ET Thu) has kept speculation simmering.

• Zerohedge twitter post is stirring the pot with rumor that Fed Chair Powell will "hint at Twist 3.0 tomorrow" a few minutes ago. Alluding to Operation Twist that does not expand the Fed's balance sheet, making it a less aggressive form of easing.
• Aside, the Tsy General Acct (TGA) CLIMBED last night: $1.501T Mar 1 vs. $1.414T prior, likely result of $126B coupon settlement (2s5s7s20s and many more on the 1st.
  
• General opinion over Twist 3.0 -- highly unlikely: "they don't own enough short end paper to sell the front end and buy bonds it would be a very short lived program," one desk said.

OVERNIGHT DATA

• US ISM SERVICES PMI 55.3 FEB VS 58.7 JAN
• US ISM SERVICES BUSINESS INDEX 55.5 FEB VS 59.9 JAN
• US ISM SERVICES EMPLOYMENT INDEX 52.7 FEB VS 55.2 JAN
• US ISM SERVICES NEW ORDERS 51.9 FEB VS 61.8 JAN
• US ISM SERVICES SUPPLIER DELIVERIES 60.8 FEB VS 57.8 JAN (NSA)

• U.S. IHS MARKIT FEB. SERVICES PMI AT 59.8 VS 58.3 LAST MONTH
• U.S. IHS MARKIT FEB. COMPOSITE PMI AT 59.5 VS 58.7 PRIOR

• US MBA: MARKET COMPOSITE +0.5% SA THRU FEB 26 WK
• US MBA: REFIS +0.1% SA; PURCH INDEX +2% SA THRU FEB 26 WK
• US MBA: UNADJ PURCHASE INDEX +1% VS YEAR-EARLIER LEVEL
• US MBA: 30-YR CONFORMING MORTGAGE RATE 3.23% VS 3.08% PREV

MARKET SNAPSHOT

Key late session market levels

• DJIA up 93.59 points (0.3%) at 31485.44
• S&P E-Mini Future down 24 points (-0.62%) at 3843.5
• Nasdaq down 266.3 points (-2%) at 13093.16
• US 10-Yr yield is up 7.2 bps at 1.4635%
• US Jun 10Y are down 14.5/32 at 133-3
• EURUSD down 0.002 (-0.17%) at 1.2071
• USDJPY up 0.27 (0.25%) at 106.96
• WTI Crude Oil (front-month) up $1.44 (2.41%) at $61.19
• Gold is down $21.9 (-1.26%) at $1716.39

• EuroStoxx 50 up 5.06 points (0.14%) at 3712.78
• FTSE 100 up 61.72 points (0.93%) at 6675.47
• German DAX up 40.23 points (0.29%) at 14080.03
• French CAC 40 up 20.33 points (0.35%) at 5830.06

US TSY SUMMARY: Heavy Two-Way After ADP Miss

• ECONOMY EXPANDED MODESTLY FOR MOST DISTRICTS TO MID-FEB; MOST BUSINESSES OPTIMISTIC FOR NEXT 6-12 MONTHS ON VACCINE, Bbg
• Tsys sold off early appr 15 minutes BEFORE weaker than est ADP +117k vs. +205k. likely knock-on selling tied to Sunak or Onto on UK budget or Corp taxes. Yield curves, particularly in the short end) continue to move steeper: 5s30s tapped 155.532 overnight compared to last Thu's 166.984 level last seen Aug 2014.
• Building inflation expectations and improving growth spurring heavy consolidation tone since last week. Wide range of estimates for this Fri's Feb NFP employ data +60k to +410k, 205k mean est.
• Sources reported two-way from prop and fast$ in shorts to intermediates, rate paying in 5s-10, real$ and bank selling out the curves.
• Technicals: Treasuries are still trading within the body of price action from Feb 25. In candle terms the pattern on this day is a bearish standard line - a continuation pattern. TYM focus on 131-31, Feb 25 low. Key S/T resistance is at 134-06+, the Feb 25 high.
• The 2-Yr yield is up 1.8bps at 0.1388%, 5-Yr is up 6.3bps at 0.722%, 10-Yr is up 7.2bps at 1.4635%, and 30-Yr is up 5.5bps at 2.2462%.

US TSY FUTURES CLOSE: Heavy Selling Despite ADP Miss

Trading weaker across the board after the bell, support evaporated well ahead weaker than est ADP (117k vs. 205k) and never recovered. Heavy two-way w/better selling in set up ahead Fed Chair Powell WSJ virtual event at 1205ET Thu and Feb NFP Fri.

• 3M10Y +8.329, 143.158 (L: 134.835 / H: 145.401)
• 2Y10Y +6.304, 132.943 (L: 127.348 / H: 135.383)
• 2Y30Y +4.097, 210.732 (L: 207.653 / H: 213.876)
• 5Y30Y -0.72, 152.16 (L: 150.506 / H: 155.532)
• Current futures levels:
• Jun 2Y down 1.375/32 at 110-13 (L: 110-12.75 / H: 110-14.5)
• Jun 5Y down 9/32 at 124-8.25 (L: 124-05.5 / H: 124-19)
• Jun 10Y down 17/32 at 133-0.5 (L: 132-26 / H: 133-22.5)
• Jun 30Y down 1-1/32 at 158-14 (L: 157-27 / H: 159-29)
• Jun Ultra 30Y down 1-10/32 at 187-11 (L: 186-01 / H: 189-11)

US EURODOLLAR FUTURES CLOSE: Reversed Early Bid After 3M LIBOR Gapped Higher

Weaker most of the session, Whites reversed early gains w/heavy selling in lead quarterly EDH1 after 3M LIBOR gapped higher: +0.01037 to 0.19375%.

• Mar 21 -0.008 at 99.818
• Jun 21 -0.005 at 99.835
• Sep 21 steady at 99.825
• Dec 21 steady at 99.780
• Red Pack (Mar 22-Dec 22) -0.025 to -0.005
• Green Pack (Mar 23-Dec 23) -0.065 to -0.035
• Blue Pack (Mar 24-Dec 24) -0.075 to -0.065
• Gold Pack (Mar 25-Dec 25) -0.08

US TSY: Short Term Rates

US DOLLAR LIBOR: Latest settles:

• O/N -0.00038 at 0.07850% (-0.00550/wk)
• 1 Month -0.00538 to 0.10300% (-0.01550/wk)
• 3 Month +0.01037 to 0.19375% (+0.00537/wk) ** (Record Low of 0.17525% on 2/19/21)
• 6 Month +0.00425 to 0.21100% (+0.00800/wk)
• 1 Year +0.00300 to 0.28200% (-0.00175/wk)

• Daily Effective Fed Funds Rate: 0.07% volume: $68B
• Daily Overnight Bank Funding Rate: 0.07%, volume: $204B

• Secured Overnight Financing Rate (SOFR): 0.04%, $951B
• Broad General Collateral Rate (BGCR): 0.02%, $390B
• Tri-Party General Collateral Rate (TGCR): 0.02%, $349B
• (rate, volume levels reflect prior session)

• Tsy 4.5Y-7Y, $6.001B accepted vs. $16.880B submission
• Next scheduled purchases:
• Thu 3/4 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
• Fri 3/5 1100-1120ET: Tsy 2.25Y-4.5Y, appr $8.825B

PIPELINE: $4B Peru 3Pt Leads; Swedish Export Rolled to Thursday

• Date $MM Issuer (Priced *, Launch #)
  
• 03/03 $4B #Peru $1.75 2031-tap +125, $1.25 20Y +140, $1B 30Y +145
• 03/03 $2B #Barclays $1B 11NC10 +120, $1B 21NC20 +170
• 03/03 $1.6B #Vontier $500M 5Y +110, $500M 7Y +130, $600M 10Y +150
• 03/03 $1.1B #Marriott Int 10Y +140
• 03/03 $1B *Kommunivest WNG 3Y +1
• 03/03 $850 #Agilent 10Y +85
• 03/03 $750M #Equitable Financial Life 7Y +70
• 03/03 $700M #Omega Healthcare 12Y +185
• 03/03 $600M #Corp Office Properties 10Y +140
• Rolled to Thursday
• 03/04 $1B Swedish Export 3Y +6a

FOREX: Markets Contained Despite Poor US Data

The single currency gave up early gains, settling lower against against the greenback despite Bloomberg reports citing sources in saying the ECB see no need for drastic action government bond yields at these levels. EUR/USD showed above 1.21 in the initial reaction, but faded swiftly into the London close.

• The greenback generally traded well, with the USD index in minor positive territory - but yesterday's highs contained, providing markets with few new directional signals.
• Both the ISM Services Index and ADP Employment Change came in slightly below forecast, heightening focus on Friday's jobs report, in which markets expect 200k jobs to have been added across the month.
• Focus Thursday turns to weekly US jobless claims & factory orders and Australian trade balance for January. Central bank speak again takes focus, with RBA's Kearns, ECB's Knot & Centeno and Fed Chair Powell.