MNI ASIA OPEN: Midweek Focus: FOMC, ADP, Tsy Qrtr Refunding

EXECUTIVE SUMMARY

• SEN SCHUMER: AGREEMENT REACHED TO LOWER RX DRUG COSTS, Bbg
• SEN SCHUMER SAYS SINEMA BACKS DRUG-PRICING AGREEMENT, Bbg
• DEMOCRATS ARE EYING A FIVE-YEAR STATE AND LOCAL TAX DELAY THROUGH 2025 - POLITICO

US TSYS: Rate-Hike Bets Cool Slightly Ahead Next FOMC Policy Annc

• FOMC is expected to announce a tapering of net purchases of Treasuries by USD10 billion a month and mortgage securities by USD5 billion a month, ending the USD120 billion monthly QE program by mid-2022. Note: decent short end bid from accts paring rate-hike bets (Eurodlr Reds (EDZ2-EDU3) up 0.105-0.110 late)
• Second half of week makes up for lack of data in first half: ADP private employ data early Wed (+400k est) followed by Tsy quarterly refunding at 0830ET. Last but not least: Friday's October employment data: +450k mean estimate.
• Early bid on foreign support: Rates traded firmer with the exception of steady 30Y ultra-bonds on the open, yield curves steeper (5s30s over 80.0 after see-sawing near low 70.0s since Friday). Sources report decent foreign real money buying in 2s-5s overnight vs. light deal-tied selling, Asian real$ buying out the curve.
• Early trade turned two-way in the short end as rates pare modest gains: central bank selling 3s and separately buying 5s. Out the curve: leveraged acct selling 20s while central bank buy 30s. Ultra-bond futures managed gains after trading weaker much of the first half.
• The 2-Yr yield is down 4.7bps at 0.4519%, 5-Yr is down 2.9bps at 1.1476%, 10-Yr is down 1bps at 1.5453%, and 30-Yr is down 0.1bps at 1.9569%.

OVERNIGHT DATA

• US REDBOOK: OCT STORE SALES +15.7% V YR AGO MO
• US REDBOOK: STORE SALES +16.9% WK ENDED OCT 30 V YR AGO WK
• US REDBOOK: WILL RESUME MONTH-TO-MONTH DATA COMPARISON IN FEB 2022

MARKET SNAPSHOT

Key late session market levels:

• DJIA up 141.5 points (0.39%) at 36052.57
• S&P E-Mini Future up 15.75 points (0.34%) at 4621.25
• Nasdaq up 31.7 points (0.2%) at 15626.74
• US 10-Yr yield is down 1 bps at 1.5453%
• US Dec 10Y are up 10/32 at 130-31
• EURUSD down 0.0025 (-0.22%) at 1.1581
• USDJPY down 0.05 (-0.04%) at 113.95
• WTI Crude Oil (front-month) down $0.51 (-0.61%) at $83.51
• Gold is down $5.93 (-0.33%) at $1787.34

US TSY FUTURES CLOSE

• 3M10Y -1.141, 149.107 (L: 147.278 / H: 151.739)
• 2Y10Y +3.723, 108.985 (L: 105.261 / H: 109.336)
• 2Y30Y +4.911, 150.357 (L: 145.417 / H: 150.633)
• 5Y30Y +3.185, 80.95 (L: 77.046 / H: 81.99)
• Current futures levels:
• Dec 2Y up 4.375/32 at 109-23.375 (L: 109-19.25 / H: 109-23.875)
• Dec 5Y up 9.5/32 at 121-31.75 (L: 121-22 / H: 122-03)
• Dec 10Y up 11.5/32 at 131-0.5 (L: 130-20.5 / H: 131-04.5)
• Dec 30Y up 13/32 at 160-25 (L: 160-11 / H: 161-05)
• Dec Ultra 30Y up 16/32 at 195-18 (L: 194-16 / H: 196-09)

US EURODOLLAR FUTURES CLOSE

• Dec 21 steady at 99.780
• Mar 22 +0.030 at 99.760
• Jun 22 +0.065 at 99.60
• Sep 22 +0.080 at 99.410
• Red Pack (Dec 22-Sep 23) +0.090 to +0.095
• Green Pack (Dec 23-Sep 24) +0.025 to +0.070
• Blue Pack (Dec 24-Sep 25) -0.015 to +0.015
• Gold Pack (Dec 25-Sep 26) -0.03 to -0.02

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N +0.00450 at 0.07213% (+0.00000/wk)
• 1 Month -0.00025 to 0.08088% (-0.00662/wk)
• 3 Month +0.00412 to 0.14500% (+0.01275/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.00988 to 0.22075% (+0.01975/wk)
• 1 Year -0.00887 to 0.35838% (-0.00275/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $78B
• Daily Overnight Bank Funding Rate: 0.07% volume: $266B

• Secured Overnight Financing Rate (SOFR): 0.05%, $959B
• Broad General Collateral Rate (BGCR): 0.05%, $353B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $329B
• (rate, volume levels reflect prior session)

• TIPS 1Y-7.5Y, $2.001B accepted vs. $5.458B submission
• Next scheduled purchases
• Wed 11/03 No buy operation due to FOMC annc, two on Thu:
• Thu 11/04 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
• Thu 11/04 1100-1120ET: Tsy 10Y-22.5Y, appr $1.425B
• Fri 11/05 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.425B

FED Reverse Repo Operation

NY Fed reverse repo usage declines to $1,329.913B from 77 counterparties vs. Monday's $1,358.606B. Record high remains at $1,604.881B from Thursday, September 30.

PIPELINE: Corporate Debt Issuance Over $16.15B Ahead FOMC

$4.7B to Price Tuesday; $16.15B/wk

• Date $MM Issuer (Priced *, Launch #)
• 11/02 $2.5B #Deutsche Bank $1.75B 2Y +52, $750M 2Y FRN/SOFR+50
• 11/02 $850M #Walgreens Boots 2NC.5 +50
• 11/02 $750M #Arthur J Gallagher $400M 10Y +90, $350N +30Y +115
• 11/02 $600M *BOCGI (Bank of China Green) 5Y +75
• Reverse Yankees priced earlier:
• 11/02 E1B *Goldman Sachs 7.5Y +80
• 11/02 E400M *General Mills 4Y +30

EGBs-GILTS CASH CLOSE: BTPs Soar

EGB yields dropped by some of the most since early 2020 in a cross-asset rally (Eurostoxx hit all-time highs). Gilts underperformed Bunds. Bellies outperformed on the curve.

• Some short-cover and profit taking was noted, with central bank rate hike pricing becoming a little less aggressive after a dovish RBA outcome and ahead of key Fed and BoE meetings.
• Particularly notable were big rallies in periphery EGBs (BTP spreads tightened ~7bp) and semi-core (OATs in particular). Albeit on lighter volumes than seen in last week's sharp drops.
• Not much on the calendar today: Italian PMIs impressed, while Spain's disappointed.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.5bps at -0.664%, 5-Yr is down 7.3bps at -0.474%, 10-Yr is down 6.1bps at -0.163%, and 30-Yr is up 0.7bps at 0.177%.
• UK: The 2-Yr yield is down 2.4bps at 0.673%, 5-Yr is down 3bps at 0.814%, 10-Yr is down 2.2bps at 1.04%, and 30-Yr is up 3.4bps at 1.177%.
• Italian BTP spread down 6.8bps at 124.7bps / Spanish down 3.4bps at 69.9bps

FOREX: AUD and NZD Close Near The Lows, EURNOK Extends Bounce

• Supportive greenback price action saw AUDUSD (-1.34%) and NZDUSD (-1.11%) continue their slump to the worst levels in two weeks.
• Price action in AUD largely a reflection of the broadly dovish central bank overnight, exacerbated by the consistent grind higher in the dollar index (+0.21%) ahead of tomorrow's fed decision.
• With US equity indices continuing to probe record highs and broad technical conditions for AUDUSD remaining bullish, we note firm support is still seen at 0.7393, the 50-day EMA. AUDJPY has fallen an even more dramatic 1.42% and worth noting pivot support residing at 84.26, the late June and July highs.
• The Norwegian Krone extended a correction on Tuesday after a relentless rally against the euro, with this week's Norges Bank meeting likely to have minimal effect. EURNOK surged through last week's highs at 9.80, rising around 1.11% for the session. The April lows reflect the first level of pivotal resistance for the pair, residing around 9.90.
• USDCHF also gained a solid 0.58% after bouncing from trendline support across the 2021 lows at 0.9090.
• EURGBP continued its relief rally, spending the majority of the day back above the 0.85 handle.
• In emerging markets, USDILS reversed early weakness after falling to its lowest level since 1996.
• US ADP employment change and ISM Services PMI are scheduled for Wednesday, however, all eyes will be on the November FOMC decision. New Zealand employment data will kick-off the APAC session.