MNI ASIA OPEN: Tsy 10Y Sale Tails

EXECUTIVE SUMMARY

• MNI BRIEF: Kashkari Says Inflation May Settle In A Few Quarters
• MNI BRIEF: Daly Warns Against Fast Rate Hike As Prices May Fade
• MNI: DALY SAYS PREMATURE RATE HIKE WOULD BRIDLE THE ECONOMY
• MNI BRIEF: BOE Broadbent: See Acute Labour Supply Shortages

US

FED: San Francisco Fed President Mary Daly warned Tuesday against "prematurely" raising interest rates in reaction to a jump in food and energy prices that could fade next year, saying that strategy would "bridle" the economic rebound.

• "Our policies take 12 to 18 months to work themselves through -- will do very little about changing the fact that Vietnam had to close the ports for for COVID. But we will absolutely affect the pace of job growth going forward, the pace of the recovery of labor supply," she said at a NABE webinar.
  

UK

BOE: UK labour supply shortages were "pretty acute," with one key factor the fall of around 450,000, compared to pre-Covid, in labour force participation, Bank of England Deputy Governor Ben Broadbent said Tuesday.

• Older workers appear to have retired earlier and younger workers to have stayed more in education, Broadbent told lawmakers. He said that the UK labour shortages were more pronounced than in the EU but less marked than in the US, with the latter seeing an even more stressed labour market. Broadbent said that he thought "participation would go up" with one million jobs furloughed at the end of the scheme in September, but that higher wages were "an inevitable outcome" in some parts of the labour market at present.
• The BOE MPC are looking closely at labour market metrics ahead of a policy decision on potential rate hikes at the December meeting.

US TSYS: Rate Curves Bull Flatten Ahead CPI, Weekly Claims

Session started off with a strong risk on bid that carried through the close, yield curves bull flattening after trading steeper during Asia hours overnight. Some desks sited rising odds of Fed gov Brainard replacing Chairman Powell after "interview" w/ Pres Biden late last wk.

• Contributing to early Curve Flattening: Dealer desks reported central bank selling in 5s, carry-over foreign real$ buying in 10s and decent leveraged$ buying in 30s (30YY falls to 1.7940% low). Light deal-tied selling/rate locks and pre-auction short sets ahead second leg of wk's Tsy supply: $39B 10Y notes.
• Tsy futures slip off highs after $39B 10Y note auction (91282CDJ7) tailed:1.444% high yield vs. 1.430% WI; 2.35x bid-to-cover well below five auction avg: 2.56x. Indirect take-up remains high at 71.01% vs. 71.05% last two auctions; direct bidder take-up falls to 13.80% vs. 17.74% last month while primary dealer take-up bounces to 15.19% vs.1 1.21%.
• Large deferred Eurodollar spd/Block: -20,000 Green Dec'23 at 98.625 (+0.045) vs. +20,000 Gold Dec'25 at 98.34 (+0.080) at 0854:55ET -- positioning for a shorter/shallower rate hike cycle ending by late 2023.
• Wednesday data: CPI and weekly claims a day early due to Thursday Veterans Day holiday closure.
• The 2-Yr yield is down 3.4bps at 0.4088%, 5-Yr is down 4.7bps at 1.07%, 10-Yr is down 5.9bps at 1.4306%, and 30-Yr is down 6.4bps at 1.8172%.

OVERNIGHT DATA

US OCT FINAL DEMAND PPI +0.6%, EX FOOD, ENERGY +0.4%
US OCT FINAL DEMAND PPI EX FOOD, ENERGY, TRADE SERVICES +0.4%
US OCT FINAL DEMAND PPI Y/Y +8.6%, EX FOOD, ENERGY Y/Y +6.8%
US OCT PPI: FOOD -0.1%; ENERGY +4.8%
US OCT PPI: GOODS +1.2%; SERVICES +0.2%; TRADE SERVICES +0.4%

US REDBOOK: NOV STORE SALES +15.6% V YR AGO MO
US REDBOOK: STORE SALES +15.6% WK ENDED NOV 06 V YR AGO WK
US REDBOOK: WILL RESUME MONTH-TO-MONTH DATA COMPARISON IN FEB 2022

MARKET SNAPSHOT

Key late session market levels:

• DJIA down 200.37 points (-0.55%) at 36229.65
• S&P E-Mini Future down 18.5 points (-0.39%) at 4675.5
• Nasdaq down 92.4 points (-0.6%) at 15890.75
• US 10-Yr yield is down 5.9 bps at 1.4306%
• US Dec 10Y are up 17/32 at 131-26.5
• EURUSD up 0.0006 (0.05%) at 1.1593
• USDJPY down 0.37 (-0.33%) at 112.86
• WTI Crude Oil (front-month) up $2.22 (2.71%) at $84.14
• Gold is up $5.33 (0.29%) at $1829.52

• EuroStoxx 50 down 7.9 points (-0.18%) at 4344.63
• FTSE 100 down 26.36 points (-0.36%) at 7274.04
• German DAX down 6.05 points (-0.04%) at 16040.47
• French CAC 40 down 4.21 points (-0.06%) at 7043.27

US TSY FUTURES CLOSE

• 3M10Y -5.914, 138.495 (L: 136.587 / H: 144.234)
• 2Y10Y -2.337, 101.976 (L: 99.67 / H: 106.526)
• 2Y30Y -2.934, 140.569 (L: 137.982 / H: 146.402)
• 5Y30Y -1.659, 74.652 (L: 72.061 / H: 78.855)
• Current futures levels:
• Dec 2Y up 2.5/32 at 109-26.375 (L: 109-23.875 / H: 109-26.5)
• Dec 5Y up 8/32 at 122-12 (L: 122-03.5 / H: 122-13.25)
• Dec 10Y up 17.5/32 at 131-27 (L: 131-10.5 / H: 131-29.5)
• Dec 30Y up 1-13/32 at 163-22 (L: 162-09 / H: 164-01)
• Dec Ultra 30Y up 2-18/32 at 200-26 (L: 198-06 / H: 201-22)

US EURODOLLAR FUTURES CLOSE

• Dec 21 +0.005 at 99.810
• Mar 22 +0.015 at 99.790
• Jun 22 +0.030 at 99.645
• Sep 22 +0.050 at 99.475
• Red Pack (Dec 22-Sep 23) +0.040 to +0.045
• Green Pack (Dec 23-Sep 24) +0.045 to +0.055
• Blue Pack (Dec 24-Sep 25) +0.065 to +0.075
• Gold Pack (Dec 25-Sep 26) +0.080 to +0.085

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N +0.00588 at 0.07088% (-0.00175/wk)
• 1 Month -0.00188 to 0.08925% (+0.00062/wk)
• 3 Month +0.00387 to 0.14950% (+0.00675/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month -0.00387 to 0.21513% (-0.00575/wk)
• 1 Year -0.00313 to 0.34975% (-0.00775/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $76B
• Daily Overnight Bank Funding Rate: 0.07% volume: $285B

• Secured Overnight Financing Rate (SOFR): 0.05%, $907B
• Broad General Collateral Rate (BGCR): 0.05%, $357B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $332B
• (rate, volume levels reflect prior session)

• TIPS 7.5Y-30Y, $1.199B accepted vs. $1.779B submission
• Next scheduled purchases
• Wed 11/10 1010-1030ET: Tsy 7Y-10Y, appr $3.225B
• Thu 11/11 Veterans Day holiday, no purchase operation
• Fri 11/12 1500ET: Update NY Fed Operational Purchase Schedule

FED Reverse Repo Operation

NY Fed reverse repo usage climbs higher: $1,377.197B from 76 counterparties vs. $1,354.382B on Monday. Record high remains at $1,604.881B from Thursday, September 30.

PIPELINE: $3.25B Saudi Arabia Updated Guidance, Swedbank Launched

• Date $MM Issuer (Priced *, Launch #)
• 11/09 $3.25B Saudi Arabia $2B 9.5Y+90, $1.25B 30Y +3.36%
• 11/09 $1.6B #Continental Resources $800M 5NC2 +120, $800M +10Y +145
• 11/09 $1.25B #SEK (Svensk Exportkredit) 2Y SOFR+14
• 11/09 $1.2B #Stillwater Mining $6.75B 5NC2 4.125%, $525M 8NC4 4.625%
• 11/09 $1B #Swedbank 5Y +47
• 11/09 $600M #Principle Life Global 5Y +55
• 11/09 $500M *Kommunalbanken 4.5Y FRN/SOFR+22
• 11/09 $Benchmark Bahrain 7.5Y Sukuk, 12.5Y investor calls
• Expected Wednesday:
• 11/10 $4B Dish Network 5Y, 7Y
• 11/10 $1B CDC (Caises des Depots et Consignations) 3Y +19
• 11/10 $Benchmark World Bank (IBRD) 7Y FRN/SOFR+30a

EGBs-GILTS CASH CLOSE: Long-End Yields Lurch Lower

Long-end UK and German yields dropped sharply Tuesday, led this time by a near-11bp drop in 30Y Germany. Periphery EGB spreads widened slightly, with Greece underperforming.

• The session saw decent gains in the morning, with few apparent catalysts (the Europe move appeared largely US Tsy led), and volumes fairly limited.
• Gains in core FI extended in mid-afternoon as equities fell sharply on the US stock market open, led by a drop in Tesla's share price.
• Once again, a limited data slate (German ZEW was mixed, but had little impact).
• The UK, Germany, and Portugal hold auctions Wednesday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2bps at -0.742%, 5-Yr is down 3bps at -0.586%, 10-Yr is down 5.5bps at -0.298%, and 30-Yr is down 10.8bps at 0.007%.
• UK: The 2-Yr yield is up 3.5bps at 0.452%, 5-Yr is up 2.8bps at 0.597%, 10-Yr is down 3.2bps at 0.824%, and 30-Yr is down 7.7bps at 0.927%.
• Italian BTP spread up 0.2bps at 113.9bps / Greek up 3.5bps at 138bps

FOREX: Cross/JPY Suffers As Equity Indices Turn Lower

• The Japanese Yen was in favour on Tuesday as benchmark US indices fell roughly 0.5% on Tuesday ahead of US CPI data tomorrow.
• USDJPY will likely complete a fourth consecutive negative trading session, slipping through the 113 support for the first time in four weeks. Despite primary trend conditions remaining bullish, a sustained break of this support zone would signal scope for a deeper pullback and open 112.08, Sep 30 high.
• With sentiment in equity markets slightly on the backfoot, AUD and NZD came under pressure, exacerbating the moves lower in AUDJPY and NZDJPY to close to 1%.
• Following a similar haven supportive theme, the Swiss Franc also gained roughly 0.3%. Overnight, EURCHF matched the Monday high of 1.0598 before consistent selling dragged the pair back to 1.0550 and within close range of the recent lows at 1.0534.
  • The move is worth noting, given recent commentary has been focusing on the key 1.0505 level. This has been garnering increased attention among market participants with the level providing crucial support following the onset of the pandemic in early 2020.
• Broad dollar indices remained steady ahead of tomorrows US data, emphasised by EURUSD trading blows either side of the 1.16 handle throughout the session.
• Potential comments later this evening from BOC Governor Tiff Macklem, before China CPI and PPI data overnight. US Consumer Price data headlines the Wednesday US docket.