MNI ASIA OPEN: 30Y Bond Ylds Back to Mid-August Lvl

EXECUTIVE SUMMARY

• US PRES BIDEN TO LAY OUT PLAN TO STOP DELTA, BOOST VACCINATIONS THURSDAY, Bbg
• SCOTLAND AIMS TO HOLD NEW INDEPENDENCE VOTE BEFORE END OF 2023, Bbg

US TSYS:: High-Grade Issuance Surge, Tsy Auctions Weighed on Rates

Markets returned from extended holiday weekend to carry-over weakness in rates Tuesday -- no significant economic data or market moving headlines, but pressured by surge in corporate issuance, four US Tsy bill auctions and $58B 3Y note auction. Tsy auctions were anticipated, but the breadth and size of the corporate issuance spurred speculative selling to get ahead of rate lock hedging -- exacerbating the curve steepening sell-off. 30YY climbed to 1.9965% high, last seen Aug 13.

• Over $30B high-grade corporate issuance issued Tuesday from a mix of 21 corporations, banks and supra-sovereigns (multi-tranche Nestle ($5B) and TD Bank ($4.5B) leading). Midday rebound off lows stalled as rate locks came back on as size of Nestle and TD Bank made the rounds.
• Tsys held weaker/off mid-morning lows after $58B 3Y note auction (91282CCX7) stops through: 0.447% high yield vs. 0.450% WI; 2.45x bid-to-cover steady w/5 auction avg. Indirect take-up remains strong at 56.67% vs. 55.41% last month, while direct bidder take-up climbs to new 1+ year high of 18.97%. Primary dealer take-up slips to 24.37% vs. Aug's 26.17% and well off 29.53% 5M average.
• Aside from deal and Tsy auction hedging, there was decent rolling of Sep MAC Swap futures (>65k) to Dec on CME Block cross facility.
• The 2-Yr yield is up 1.4bps at 0.2201%, 5-Yr is up 3.4bps at 0.8174%, 10-Yr is up 4.6bps at 1.3681%, and 30-Yr is up 4.1bps at 1.9833%.

OVERNIGHT DATA

No relevant economic data released Tuesday.

MARKET SNAPSHOT

Key late session market levels:

• DJIA down 214.39 points (-0.61%) at 35155.77
• S&P E-Mini Future down 9.5 points (-0.21%) at 4525.5
• Nasdaq up 31.2 points (0.2%) at 15395.25
• US 10-Yr yield is up 4.6 bps at 1.3681%
• US Dec 10Y are down 12/32 at 133-0.5
• EURUSD down 0.0025 (-0.21%) at 1.1845
• USDJPY up 0.43 (0.39%) at 110.29
• WTI Crude Oil (front-month) down $0.92 (-1.33%) at $68.38
• Gold is down $26.52 (-1.45%) at $1796.77

US TSY FUTURES CLOSE

• 3M10Y +5.505, 132.923 (L: 128.179 / H: 134.282)
• 2Y10Y +3.345, 114.775 (L: 112.84 / H: 116.361)
• 2Y30Y +2.943, 176.334 (L: 174.275 / H: 177.773)
• 5Y30Y +0.806, 116.477 (L: 115.255 / H: 117.289)
• Current futures levels:
• Dec 2Y down 1/32 at 110-4.5 (L: 110-04.5 / H: 110-05.875)
• Dec 5Y down 5.5/32 at 123-16.5 (L: 123-14.75 / H: 123-22.25)
• Dec 10Y down 12.5/32 at 133-0 (L: 132-28.5 / H: 133-12)
• Dec 30Y down 1-0/32 at 161-29 (L: 161-20 / H: 162-26)
• Dec Ultra 30Y down 1-20/32 at 195-6 (L: 194-24 / H: 196-23)

US EURODOLLAR FUTURES CLOSE

• Sep 21 steady at 99.883
• Dec 21 steady at 99.825
• Mar 22 steady at 99.855
• Jun 22 steady at 99.815
• Red Pack (Sep 22-Jun 23) -0.03 to -0.005
• Green Pack (Sep 23-Jun 24) -0.05 to -0.035
• Blue Pack (Sep 24-Jun 25) -0.055 to -0.05
• Gold Pack (Sep 25-Jun 26) -0.055 to -0.05

Short Term Rates

US DOLLAR LIBOR: Latest settlements

• O/N +0.00213 at 0.07288% (+0.00213/wk)
• 1 Month +0.00013 to 0.08313% (+0.00025/wk)
• 3 Month +0.00137 to 0.11600% (+0.00050/wk) ** Record Low .11463% on 9/6/21
• 6 Month -0.00062 to 0.14813% (-0.00025/wk)
• 1 Year +0.00050 to 0.22000% (-0.00275/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $68B
• Daily Overnight Bank Funding Rate: 0.07% volume: $267B

• Secured Overnight Financing Rate (SOFR): 0.05%, $883B
• Broad General Collateral Rate (BGCR): 0.05%, $386B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $352B
• (rate, volume levels reflect prior session)

• Tsy 10Y-22.5Y, $1.401B accepted vs. $3.673B submission
• Next scheduled purchases:
• Wed 9/08 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B
• Thu 9/09 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
• Fri 09/10 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.425B

FED: REVERSE REPO OPERATION

NY Fed reverse repo usage climbs to 1,079.945B from 77 counter-parties vs. $1,074.707B last Friday. Record high holds at $1,189.616B set Tuesday, Aug 31.

PIPELINE: Over $30B To Price Tuesday

Multi-tranche Nestle ($5B) and TD Bank ($4.5B) lead surge in corporate, bank and supra-sovereign issuance Tuesday -- over $30B while still waiting on RBC 5Y details.

• Date $MM Issuer (Priced *, Launch #)
• 09/07 $5B #Nestle 6pt: $1.5B 3NC2 +18a, $500M each: 5Y +35, 7Y +40, 10Y +50, 20Y +60, 30Y +68
• 09/07 $4.5B #TD Bank $1B 3Y +30, $900M 3Y FRN/SOFR, $1.4B 5Y +47, $300M 5Y FRN/SOFR, $900M 10Y +67
• 09/07 $Benchmark Royal Bank of Canada 5Y +18
• 09/07 $3B #Home Depot $1B each: 7Y +42, 10Y +57, 30Y +82
• 09/07 $2B #Caterpillar Financial $750M 3Y +22, $750M 3Y FRN/SOFR+27, $500M 5Y +37
• 09/07 $2B #ING $1B perp NC6 3.875%, $1B perp NC10 4.25%
• 09/07 $2B #Danske Bank $1B 4Y +55, $1B 6Y +73
• 09/07 $1.75B #American Honda $1B 3Y +35, $750M 5Y +50
• 09/07 $1.5B #GA Global Funding $500M each: 3Y+45, 3Y FRN/SOFR+50, 7Y+85
• 09/07 $1.5B *Waste Connections $650M 10Y +85, $850M 30Y +105
• 09/07 $1.5B Texas Inst 5Y +55a, 10Y +80a, 30Y +100a
• 09/07 $1.5B #Banco Santander 6NC5 +90
• 09/07 $1.35B #DCX Technology $700M 5Y +100, $650M 7Y +125
• 09/07 $1.25B *John Deere Capital $750M 2Y FRN/SOFR+12, $500M 3Y +22
• 09/07 $1B #Union Pacific $150M 2031 Tap +62.5, $850M 30Y+97
• 09/07 $1B *Enterprise Products WNG +31Y +137.5
• 09/07 $800M *DBS Group 5.5Y +37
• 09/07 $750M #Amphenol 10Y +87
• 09/07 $750M #Arche-Daniels-Midland 30Y +80
• 09/07 $700M #Packaging Corp WNG 30Y +110
• 09/07 $500M #Met Tower Funding 5Y +45
• 09/07 Investor calls: Walmart, CGI Inc, AvalonBay FI

EGBs-GILTS: Issuance Pushes Yields To Multi-Month Highs

UK and German yields rose sharply Tuesday, with bear steepening in the curves as supply weighed. Periphery spreads widened slightly, with Italy underperforming.

• The main theme was supply: Spain syndicated its inaugural Green Obli (E5bln), Austria sold E1.6bln of 10-15Y and the UK sold GBP4.5bln of 4-/50Y. The EU announced its borrowing plan update.
• All the while, heavy US Treasury and Corporate issuance pushed 10Y Bund / Gilt yields to highest levels since July / June, respectively.
• BoE Saunders said rates could rise in the next 12 months; UK PM Johnson announced a 1.25% national insurance tax hike, though little market impact as was previously reported.
• German ZEW disappointed; Eurozone GDP was revised higher.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.7bps at -0.698%, 5-Yr is up 4.2bps at -0.63%, 10-Yr is up 4.5bps at -0.322%, and 30-Yr is up 3.4bps at 0.169%.
• UK: The 2-Yr yield is up 1.4bps at 0.192%, 5-Yr is up 2.3bps at 0.377%, 10-Yr is up 4.3bps at 0.737%, and 30-Yr is up 3.5bps at 1.075%.
• Italian BTP spread up 1.8bps at 107.5bps / Spanish up 0.6bps at 69.1bps

FOREX: Dollar Index Extends Bounce As US Yields Edge Higher

• The dollar remained underpinned throughout Tuesday's session as US markets returned from the Labor Day holiday.
• Both higher U.S. yields, combined with a softer tone for equities/commodities provided the USD with solid demand. The dollar index extended on Monday's gains, recovering from a poor streak culminating in a weak headline NFP print last Friday.
• The Canadian Dollar (-0.8%) was the weakest among G10 currencies with weaker risk sentiment and the higher greenback fuelling demand for USDCAD. In similar fashion, both AUD and NZD fell over half a percent.
• With EURUSD trading higher Friday on the weaker-than-forecast NFP release, the pair touched but failed to break key resistance at the Jul 30 high of 1.1909. This level remains a key hurdle for bulls. On the downside, the support to watch is 1.1735, Aug 27 low. A break would suggest the recent rally is over.
• EMFX was also on the backfoot given the elevated US yields and stronger US dollar, with the Chilean Peso (-1.00%) and the Turkish Lira (-0.78%) faring the worst.
• Tomorrow, markets will await the September Bank of Canada decision/statement. The BOC will likely try to avoid creating any political talking points less than two weeks ahead of the snap federal election on September 20.
• The domestic UK highlight of the week will be the Treasury Select Committee hearing tomorrow with MPC Governor Bailey and members Broadbent, Ramsden and Tenreyro all due to testify.
• Highlights in the U.S. will be July Jolts data and the Fed's Beige Book before markets prepare for the EBC statement/press conference on Thursday.