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EXECUTIVE SUMMARY

  • MNI INSIGHT: Rate Squeeze Would Limit BOE Bond Runoff
  • MNI BRIEF: SEC's Gensler Considering Treasury Central Clearing
  • CHINA TO SELL 7.38M BARRELS OF CRUDE FROM RESERVE ON SEPT. 24, Bbg
  • GENSLER SAYS SEC CONSIDERING GREATER DISCLOSURES FOR SPACS, Bbg

US

US: Central clearing of the USD22 trillion Treasury market is one option for reform following last year's dash for cash, SEC Chair Gary Gensler told Senators at a Tuesday hearing.

  • "We will seek to consider some of the recommendations that external groups, like the Group of Thirty and Inter-Agency Working Group for Treasury Market Surveillance, have offered around potential central clearing for both cash and repo Treasuries," he said. "I would hope we can bring more resilience through central clearing in that market and also bringing the principal trading firms, the high-frequency trading firms into that remit."
  • New York Fed staff in an analysis found settlement fails would have been lower in March 2020 if Treasury trades had been centrally cleared, and some ex-Fed officials continue to push for central clearing.

UK

BOE: The Bank of England's balance sheet is likely to stay elevated for the foreseeable future, as emerging details of its newly-modified tightening strategy indicate that reductions of its stock of gilts may have to stop at a hard-to-determine point when the drain on central bank reserves starts to push market interest rates uncomfortably high, MNI understands.

  • Drawing lessons from the Federal Reserve's experience of its round of quantitative tightening in 2017, the BOE calculates that it should be able to run down its balance sheet for some time without pushing up the cost of market funds if it clearly communicates that QT should not be interpreted as a signal of the future direction of its benchmark interest rate. As the Fed discovered, however, eventually such pressures do materialise when reductions in holdings eliminate too many reserves, and the BOE agrees, though the point at which this will occur is not clear. For more see MNI Policy main wire at 1224ET.

OVERNIGHT DATA

  • US AUG CPI 0.3%, CORE 0.1%; CPI Y/Y 5.3%, CORE Y/Y 4.0%
  • US AUG ENERGY PRICES 2.0%
  • US AUG OWNERS' EQUIVALENT RENT PRICES 0.3%
  • US REDBOOK: STORE SALES +15.3% WK ENDED SEP 11 V YR AGO WK
  • US REDBOOK: WILL RESUME MONTH-TO-MONTH DATA COMPARISON IN FEB 2022
  • CANADIAN JUL MANUFACTURING SALES -1.5% MOM
  • CANADA JUL FACTORY INVENTORIES +2.6%; INVENTORY-SALES RATIO 1.58

MARKET SNAPSHOT

Key late session market levels:

  • DJIA down 308.82 points (-0.89%) at 34564.55
  • S&P E-Mini Future down 28 points (-0.63%) at 4432
  • Nasdaq down 69.6 points (-0.5%) at 15036.71
  • US 10-Yr yield is down 5.1 bps at 1.2752%
  • US Dec 10Y are up 10/32 at 133-19.5
  • EURUSD up 0.0002 (0.02%) at 1.1813
  • USDJPY down 0.36 (-0.33%) at 109.63
  • WTI Crude Oil (front-month) down $0 (0%) at $70.46
  • Gold is up $10.32 (0.58%) at $1804.12
European bourses closing levels:
  • EuroStoxx 50 up 2.14 points (0.05%) at 4191.67
  • FTSE 100 down 34.37 points (-0.49%) at 7034.06
  • German DAX up 21.57 points (0.14%) at 15722.99
  • French CAC 40 down 23.96 points (-0.36%) at 6652.97

US TSYS: Aug CPI Underscores Fed Chair Powell's Transitory Inflation Message

Weaker than anticipated August CPI 0.3% vs. 0.4% est (0.5% prior and core of 0.1% was the catalyst for long-end lead rally in rates and flatter curves Tuesday, while equities traded weaker -- technical support held (ESZ1 -31.0 at 4428.50). Tsy
30YY fell back to early August level of 1.8292% last seen Aug 5.

  • Today's data underscores Fed Chairman Powell's "transitory inflation" message, but remember the Federal Reserve remains in media blackout until September 23.
  • Trade surged, TYZ1 >1.4M twice that of Monday's post-close volumes, but dog days of summer malaise resumed in the second half.
  • Option volumes proved muted, vol sellers emerging by midmorning while low delta put buyers noted in Oct 5- and 10Y options.
  • No Treasury bill auctions, but corporate issuance remined robust with over $18B pricing on the day after $24.4B on Monday.
  • The 2-Yr yield is down 0.6bps at 0.207%, 5-Yr is down 2.6bps at 0.779%, 10-Yr is down 5.1bps at 1.2752%, and 30-Yr is down 5.8bps at 1.8465%.

US TSY FUTURES CLOSE

  • 3M10Y -4.388, 123.128 (L: 121.864 / H: 130.228)
  • 2Y10Y -4.814, 106.286 (L: 105.676 / H: 113.184)
  • 2Y30Y -5.471, 163.484 (L: 162.419 / H: 171.862)
  • 5Y30Y -3.16, 106.487 (L: 105.959 / H: 112.169)
  • Current futures levels:
  • Dec 2Y up 0.25/32 at 110-5.375 (L: 110-04.5 / H: 110-05.875)
  • Dec 5Y up 3.5/32 at 123-22.75 (L: 123-15.5 / H: 123-25.25)
  • Dec 10Y up 10.5/32 at 133-20 (L: 133-03 / H: 133-23)
  • Dec 30Y up 1-07/32 at 164-12 (L: 162-18 / H: 164-22)
  • Dec Ultra 30Y up 2-09/32 at 200-15 (L: 197-05 / H: 201-02)

US EURODOLLAR FUTURES CLOSE

  • Dec 21 steady at 99.825
  • Mar 22 steady at 99.855
  • Jun 22 +0.010 at 99.820
  • Sep 22 +0.010 at 99.730
  • Red Pack (Dec 22-Sep 23) +0.010 to +0.015
  • Green Pack (Dec 23-Sep 24) +0.010 to +0.020
  • Blue Pack (Dec 24-Sep 25) +0.025 to +0.045
  • Gold Pack (Dec 25-Sep 26) +0.050 to +0.060

Short Term Rates

US DOLLAR LIBOR: Latest settlements

  • O/N -0.00150 at 0.07188% (+0.00025/wk)
  • 1 Month +0.00088 to 0.08463% (+0.00075/wk)
  • 3 Month +0.00200 to 0.11800% (+0.00225/wk) ** Record Low 0.11413% on 9/12/21
  • 6 Month -0.00075 to 0.14788% (-0.00150/wk)
  • 1 Year -0.00063 to 0.22250% (+0.00000/wk)
STIR: FRBNY EFFR for prior session:
  • Daily Effective Fed Funds Rate: 0.08% volume: $67B
  • Daily Overnight Bank Funding Rate: 0.07% volume: $262B
US TSYS: Repo Reference Rates
  • Secured Overnight Financing Rate (SOFR): 0.05%, $914B
  • Broad General Collateral Rate (BGCR): 0.05%, $382B
  • Tri-Party General Collateral Rate (TGCR): 0.05%, $354B
  • (rate, volume levels reflect prior session)
FED: Update NY Fed Operational Purchase Schedule
  • Operations resume Wednesday:
  • Wed 9/15 1010-1030ET: Tsy 0Y-2.25Y, appr $12.425B
  • Thu 9/16 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B
  • Fri 9/17 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B
  • Next week's buy-operations:
  • Mon 9/20 1010-1030ET: Tsy 7Y-10Y, appr $3.225B
  • Tue 9/21 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
  • Wed 9/22 No buy operation scheduled due to FOMC
  • Thu 9/23 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B
  • Fri 9/24 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B

FED: REVERSE REPO OPERATION, $20B Off Record High

NY Fed reverse repo usage climbs to 1,169.280B from 80 counter-parties vs. $1,087.108B Monday. Record high holds at $1,189.616B set Tuesday, Aug 31.

PIPELINE: Updated Guidance, Chile to Launch Soon

Date $MM Issuer (Priced *, Launch #)

  • 09/14 $4.25B #Hungary $2.25B 10Y +100, $2B 30Y +150
  • 09/14 $3B #Hyundai Central America $1.2B 3Y +63, $1B 5Y +88, $800M 7Y +105
  • 09/14 $2B *Ontario Teachers Fnc Trust 5Y +10
  • 09/14 $1.5B #BP Capital Mkts $1.25B +30Y +117, $250M 40Y +127
  • 09/14 $1.5B *Sinochem $400M 3Y +65, $600M 5Y +80, $500M 10Y +110
  • 09/14 $1B #Norichukin Bank $00M 5Y +50, $500M 10Y +80
  • 09/14 $1B *Nordic Investment Bank 3Y -5
  • 09/14 $1B Rep of Chile WNG 50Y +160a
  • 09/14 $850M #Carlisle $300M 2NC1 +37, $550M 10.5Y +97
  • 09/14 $Benchmark Bank of America 15NC10 +120
  • 09/14 $2B Coinbase $1B 7NC3 3.375%, $1B 10NC5 3.625%
  • Expected Wednesday:
  • 09/15 $1B Council of Europe (COE) WNG 5Y -1a
  • 09/15 $Benchmark IADB 3Y SOFR+15a

EGBs-GILTS CASH CLOSE: US CPI Lifts All Boats

A downside miss in the much-anticipated US CPI data release buoyed the European FI space Tuesday, with early supply-driven weakness reversing.

  • The Bund and Gilt curves bull flattened slightly, while Italy outperformed - 10Y BTP spreads/Germany hit lowest level since Aug 13 (98.1bp).
  • Supply this morning came from the UK (Gilt, GBP3bn), Germany (Schatz, E3.9bn allotted), Italy (BTPs, E9.0bn), plus E9bn EU NGEU 7Y syndication.
  • UK employment data came in stronger than expected; Aug CPI data Weds morning enters focus.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 0.5bps at -0.7%, 5-Yr is down 0.3bps at -0.644%, 10-Yr is down 0.9bps at -0.34%, and 30-Yr is down 1.4bps at 0.152%.
  • UK: The 2-Yr yield is up 0.3bps at 0.231%, 5-Yr is up 0.5bps at 0.419%, 10-Yr is down 0.7bps at 0.738%, and 30-Yr is down 1.3bps at 1.043%.
  • Italian BTP spread down 3bps at 98.7bps / Spanish down 1.4bps at 64.6bps

FOREX: Cross-JPY Under Pressure As Risk Sours Post CPI

  • Lower than expected headline CPI figures worked against the greenback at the outset with the dollar index shedding roughly 30 pips.
  • Consistent pressure on equity indices following the data has kept risk-tied currencies under pressure and safe haven fx firmly bid with the Japanese Yen and Swiss Franc notable beneficiaries.
  • With risk sentiment weighing, AUDJPY was the worst performing currency pair, down a little over 1% for Tuesday. Despite yesterday's minor uptick, this will be the sixth losing session in the past 7 trading days for the pair, giving up the majority of September's gains.
  • USDJPY is currently testing the first support band of 109.59/41 Low Aug 31 and Sep 3 / Low Aug 24.
  • Technically, a bearish risk is still present and key support lies at 108.72, Aug 4 low where a break would strengthen a bearish case and open 108.47, a Fibonacci retracement.
  • Elsewhere EURUSD printed a fresh high for the week at 1.1846, however, the single currency has gradually reversed, turning negative as we approach Tuesday's close of play.
  • GBPUSD also had a sharp turnaround off the highs at 1.3913 to trade a full big figure lower and hover above Monday's worst levels at 1.38.
  • Chinese retail sales are due overnight before markets will turn to UK and Canadian CPI data on Wednesday.
  • US Empire State Manufacturing Index and Industrial production will headline the US docket.