MNI ASIA OPEN: Fed's Harker and Bostic Talk Taper Again

EXECUTIVE SUMMARY

• MNI BRIEF: Fed's Harker Wants QE Taper Talk Sooner Not Later
• MNI BRIEF: Fed's Bostic 'Always' Wanted to Discuss QE Taper
• MNI BRIEF: Fed's Kaplan Says 'Vigilant' to Inflation Risks
• CHINA REITERATES CALL FOR CRACKDOWN ON BITCOIN MINING, TRADING, Bbg

US TSY SUMMARY: Minority Fed Speakers Reiterate Taper View

Tsys futures finished the session mixed, Bonds outperforming mildly weaker 2s-10s. Rates held narrow range since midmorning.

• Similar price action to Thu's Tsys in Euro FI: disappointing German PMI had mkt discounting taper talk, with Tsys moving higher in turn in early NY trade. Tsys pared gains along with equities after Markit Services PMI comes out stronger than expected 70.1 vs expected 64.3, Composite 68.1 vs. last of 63.5.
• Rates and equities pared gains, after Fed Harker comments: HARKER SAYS FED SHOULD START HAVING CONVERSATION ABOUT TAPERING SOONER RATHER THAN LATER, Rtrs
• Not a marked react, but rates and equities continuing mild risk-on unwind since Harker kicked off. Dallas Fed Kaplan comments: "Would Not Be Surprised by 'Odd or Unusual' Job Data; Better for Fed to Act 'Sooner Rather Than Later', Dj
  Surge in June/Sep futures roll and June Tsy options expiration added to robust volumes.
• Surge in June/Sep futures roll and June Tsy options expiration added to robust volumes.
• The 2-Yr yield is up 0.8bps at 0.1533%, 5-Yr is up 1bps at 0.8212%, 10-Yr is down 0.3bps at 1.6216%, and 30-Yr is down 1.3bps at 2.3176%.

US

FED: Philadelphia Fed President Patrick Harker said Friday a discussion to begin slowing the central bank's asset purchase program should begin sooner rather than later, with discussions including an MBS taper.

• "I am of the camp that sooner rather than later we should start talking about tapering, and clearly part of that conversation will be the MBS taper," Harker said. Earlier this week MNI reported the Fed is set to think through larger reductions of mortgage bonds than Treasuries as it considers taper options.
• "We need to follow the playbook we had after the Great Recession, that is the start a taper of the bond purchases, slowly remove accommodation, carefully, methodically, I would even argue boringly, so that we don't surprise the market," he said at a Washington Post webinar.

FED: Modest Midday Reversal on Hawkish Fed Harker -- Equities pared gains, eminis back to steady before rebounding slightly after Fed Harker comments:

• SAYS FED SHOULD START HAVING CONVERSATION ABOUT TAPERING SOONER RATHER THAN LATER, Rtrs

• FACTORS LIMITING LABOR SUPPLY ARE TEMPORARY, Rtrs
• UNEMPLOYMENT BENEFITS MAY BE AFFECTING SOME PEOPLE BUT IT'S NOT THE ONLY FACTOR, Rtrs
  
• CHILDCARE AND ELDER CARE, ALONG WITH TRANSPORTATION ARE HOLDING SOME WORKERS BACK, Rtrs
  
• UNEMPLOYMENT BENEFITS WILL RUN OFF OVER NEXT COUPLE OF MONTHS, Rtrs
• IS MORE WORRIED ABOUT GIVING PEOPLE THE SENSE THAT IT'S SAFE TO RETURN TO WORK, Rtrs
  

• FED NEEDS TO FOLLOW THE PLAYBOOK OF REMOVING ACCOMMODATION CAREFULLY, METHODICALLY SO THAT WE DON'T SURPRISE MARKET, Rtrs
  
• IS LOOKING FOR CONTINUED STRENGTH IN THE LABOR MARKET BEFORE FED STARTS TAPERING PROCESS, Rtrs

FED: Dallas Fed Kaplan Takes Mic -- Not a marked react, but rates and equities continuing mild risk-on unwind since Harker kicked off. Dallas Fed Kaplan comments:

• Would Not Be Surprised by 'Odd or Unusual' Job Data, Dj
• Better for Fed to Act 'Sooner Rather Than Later', Dj
• RATHER GENTLY TAKE FOOT OFF ACCELERATOR THAN BRAKE LATER, Bbg
• FED DEBATE ON POLICY IS HEALTHY AT MOMENT OF TRANSITION, Bbg

OVERNIGHT DATA

• U.S. IHS MARKIT MAY SERVICES PMI AT 70.1 VS 64.7 LAST MONTH, Bbg
  
• U.S. IHS MARKIT MAY MANUFACTURING PMI AT 61.5 VS 60.5 PRIOR, Bbg
• U.S. IHS MARKIT MAY COMPOSITE PMI AT 68.1 VS 63.5 PRIOR, Bbg

• NAR: US APRIL EXISTING HOME SALES -2.7% MOM TO 5.85M SAAR
• NAR: THREE STRAIGHT MONTHS OF DECLINE; HOME SALES +33.9% YOY
• NAR: MEDIAN HOME PRICE +19.1% AT ANNUAL PACE TO RECORD $341,600
• NAR: INVENTORY +10.5% MOM TO 1.16M, -20.5% YOY; 2.4-MONTH SUPPLY
• NAR: DAYS ON MARKET 17 DAYS, RECORD LOW

• CANADIAN MAR RETAIL SALES +3.6%; SALES EX-AUTOS/PARTS +4.3%
• CANADIAN APRIL RETAIL FLASH SALES -5.1%
• CANADA APRIL FLASH WHOLESALE SALES -0.8%

MARKETS SNAPSHOT

• DJIA up 123.69 points (0.43%) at 34207.84
• S&P E-Mini Future down 2.45 points (0.14%) at 4152
• Nasdaq down 64.75 points (-0.2%) at 13470.99
• US 10-Yr yield is down 0.2 bps at 1.6233%
• US Jun 10Y are down 0.5/32 at 132-15
• EURUSD down 0.0053 (-0.43%) at 1.2175
• USDJPY up 0.18 (0.17%) at 108.96

US TSY FUTURES CLOSE:

• 3M10Y +0.166, 161.397 (L: 160.293 / H: 162.931)
• 2Y10Y -1.159, 146.624 (L: 145.805 / H: 148.774)
• 2Y30Y -2.119, 216.229 (L: 216.013 / H: 219.382)
• 5Y30Y -2.122, 149.48 (L: 149.246 / H: 152.425)
• Current futures levels:
• Jun 2Y down 0.25/32 at 110-12.875 (L: 110-12.75 / H: 110-13.375)
• Jun 5Y down 1.25/32 at 124-6.25 (L: 124-04.5 / H: 124-09)
• Jun 10Y down 1.5/32 at 132-14 (L: 132-12 / H: 132-20)
• Jun 30Y up 8/32 at 157-8 (L: 156-30 / H: 157-16)
• Jun Ultra 30Y up 12/32 at 184-30 (L: 184-13 / H: 185-13)

US EURODOLLAR FUTURES CLOSE

• Jun 21 -0.003 at 99.853
• Sep 21 steady at 99.850
• Dec 21 steady at 99.80
• Mar 22 +0.005 at 99.820
• Red Pack (Jun 22-Mar 23) -0.005 to steady
• Green Pack (Jun 23-Mar 24) -0.015 to -0.01
• Blue Pack (Jun 24-Mar 25) -0.015 to -0.01
• Gold Pack (Jun 25-Mar 26) -0.01 to -0.005

Short Term Rates

US DOLLAR LIBOR: Latest Settles

• O/N -0.00138 at 0.05975% (-0.00225/wk)
• 1 Month -0.00087 to 0.09163% (-0.00587/wk)
• 3 Month -0.00313 to 0.14700% (-0.00813/wk) ** (Record Low)
• 6 Month -0.00550 to 0.17875% (-0.00888/wk)
• 1 Year -0.00437 to 0.25963% (-0.00625/wk)

• Daily Effective Fed Funds Rate: 0.06% volume: $66B
• Daily Overnight Bank Funding Rate: 0.05% volume: $259B

• Secured Overnight Financing Rate (SOFR): 0.01%, $872B
• Broad General Collateral Rate (BGCR): 0.01%, $372B
• Tri-Party General Collateral Rate (TGCR): 0.01%, $358B
• (rate, volume levels reflect prior session)

• Tsy 7Y-10Y, $3.201B accepted vs. $10.794B submission
• Next scheduled purchases:
• Mon 5/24 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B
• Tue 5/25 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B
• Wed 5/26 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.425B
• Thu 5/27 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B
• Fri 5/28 1010-1030ET: Tsy 0Y-2.25Y, appr $12.425B

PIPELINE: $35B High-Grade Debt Issued on Wk

After a strong start to the week with $34B debt issued Mon-Tue (only $1B Wednesday), issuance evaporating ahead the weekend.

• Date $MM Issuer (Priced *, Launch #)
• 05/21 $1.5B #Athene Global Funding 3Y FRN SOFR+70
• 05/21 $500M #Cargill WNG 30Y +85
• 05/20 No new issuance Thursday

EGBs-GILTS CASH CLOSE: Bull flatter going into the weekend

A busy but contained session for EGBs.

• Friday focus was on PMI releases, with a beat for France and the EU, while Germany saw a miss.
• Big beat for the US PMI, provided some small widening in TY/Bund spreads (2.3bps)
• The US PMIs triggered some selling interest, whilst EGBs holds onto gains, after Largarde's comment on Yields "Seen Yields increase lately, closely monitoring those".
• Peripherals have mostly traded inline with Germany, although Greece outperforms and sits 3bps tighter on the session
• After market, Moody rating on Greece.
• Bund futures are up 0.27 today at 169.11 with 10y Bund yields down -1.7bp at -0.127% and Schatz yields down -0.6bp at -0.660%
• BTP futures are up 0.28 today at 145.93 with 10y yields down -2.3bp at 1.034% and 2y yields down -0.4bp at -0.252%
• OAT futures are up 0.27 today at 159.44 with 10y yields down -1.7bp at 0.246% and 2y yields down -0.7bp at -0.639%.

FOREX: USD Reverses Early Weakness, Posts Firm Friday Performance

• Early dollar weakness overnight was followed by a strong reversal as we approached the close, resulting in broad dollar indices gaining around 0.3% on Friday.
• The Greenback had started to firm as New York sat down and was further buoyed by weakness in equities, prompting a bout of safe haven demand to close the week.
• EURUSD was unable to make fresh highs for the week above 1.2240 before consistent supply led us back towards Wednesday lows around 1.2160. A late recovery in equities spurred a minor 20 pip bounce as the pair looks set to close around 1.2180.
• GBPUSD had a firm rejection of the 2021 highs, falling just 3 pips shy of the important resistance at 1.4237. The rejection brought cable straight back towards 1.42 before the poorer global sentiment caused the pair to retreat a further 50 pips to close around 1.4150. Despite the rejection, this will constitute the highest weekly close since 2018.
• AUD and NZD were the biggest losers in the G10 space as the equity markets suffered. While barometers for EMFX stayed fairly stable, the Brazilian real and Colombian Peso led the global decline with losses over 1%.
• CHF (-0.12%) and JPY (-0.14) held narrow ranges as the historically considered haven currencies performed comparatively better on Friday against the dollar. USDCAD was also capped to just a 0.1% gain in a week where the pair made fresh 6-year lows just above the 1.20 handle.
• European and Canadian holidays to begin next week before we see the RBNZ decision, German IFO, the second reading of US GDP and Friday's headline of US Core PCE.