MNI ASIA OPEN: Geopol Tension Does Little To Temper Risk-On

EXECUTIVE SUMMARY

• U.S. ANNOUNCES DIPLOMATIC BOYCOTT OF BEIJING WINTER OLYMPICS, Bbg
• US PRES BIDEN WEIGHS SANCTIONS AGAINST PUTIN'S INNER CIRCLE, CNN SAYS

US TSYS: Strong Stocks, Rebound for Oil Weighs on Tsys

• Rates extended session lows from the noon hour, near lows on moderate overall volumes (TYH2 just over 1.1M after the bell), short end yield curves steepened. Equities climbed (ESZ1 +60.0 to 4597.0 late), WTI crude crested 70.0, gold off 4.20 to 1779.09 late).
• Of note, 2Y/10Y Ultra curve steepener blocked in first half: +14,000 TUH2 109-06, buy through 109-05.75 post-time offer at 1012:25ET vs. -4,700 UXYH2 147-22, sell-through 147-22.5 post-time bid, off the CME's 4:1 spd ratio for the pair.
• Likely to ebb later in the week, Monday's total corporate debt issuance was robust, $6B Roche helped lead total high-grade debt issuance to $17B.
• Tuesday focus: Unit Labor Costs (8.3% est), Trade Balance (-$66.9B vs. -$80.9B prior)
• The 2-Yr yield is up 4.2bps at 0.6292%, 5-Yr is up 7.9bps at 1.2111%, 10-Yr is up 9.5bps at 1.4376%, and 30-Yr is up 8.8bps at 1.7611%.

OVERNIGHT DATA

• Dec-07 0830 Nonfarm Productivity (-5.0%, -4.9%)
• Dec-07 0830 Unit Labor Costs (8.3%, 8.3%)
• Dec-07 0830 Trade Balance (-$80.9B, -$66.9B)
• Dec-07 1030 NY Fed buy-op: Tsy 22.5Y-30Y, appr $1.600B
• Dec-07 1300 US Tsy $54B 3Y Note auction (91282CDN8)
• Dec-07 1500 Consumer Credit ($29.913B, $25.0B)

MARKET SNAPSHOT

Key late session market levels:

• DJIA up 701.72 points (2.03%) at 35296.44
• S&P E-Mini Future up 63.75 points (1.41%) at 4603.25
• Nasdaq up 167.3 points (1.1%) at 15255.71
• US 10-Yr yield is up 9.5 bps at 1.4376%
• US Mar 10Y are down 26.5/32 at 130-20
• EURUSD down 0.0035 (-0.31%) at 1.1281
• USDJPY up 0.72 (0.64%) at 113.51
• WTI Crude Oil (front-month) up $3.57 (5.39%) at $69.57
• Gold is down $4.67 (-0.26%) at $1778.95

• EuroStoxx 50 up 56.96 points (1.4%) at 4137.11
• FTSE 100 up 109.96 points (1.54%) at 7232.28
• German DAX up 210.81 points (1.39%) at 15380.79
• French CAC 40 up 100.26 points (1.48%) at 6865.78

US TSY FUTURES CLOSE

• 3M10Y +9.207, 137.927 (L: 131.161 / H: 139.197)
• 2Y10Y +4.762, 79.736 (L: 75.267 / H: 81.012)
• 2Y30Y +4.189, 112.132 (L: 107.094 / H: 113.924)
• 5Y30Y +0.887, 54.635 (L: 51.533 / H: 55.896)
• Current futures levels:
• Mar 2Y down 2.875/32 at 109-4.875 (L: 109-04.625 / H: 109-07.625)
• Mar 5Y down 13.25/32 at 121-2.25 (L: 121-01.25 / H: 121-12.25)
• Mar 10Y down 25.5/32 at 130-21 (L: 130-19.5 / H: 131-08.5)
• Mar 30Y down 1-20/32 at 162-17 (L: 162-10 / H: 163-30)

US EURODOLLAR FUTURES CLOSE

• Dec 21 -0.005 at 99.793
• Mar 22 -0.025 at 99.690
• Jun 22 -0.035 at 99.505
• Sep 22 -0.045 at 99.270
• Red Pack (Dec 22-Sep 23) -0.075 to -0.05
• Green Pack (Dec 23-Sep 24) -0.11 to -0.08
• Blue Pack (Dec 24-Sep 25) -0.135 to -0.12
• Gold Pack (Dec 25-Sep 26) -0.14 to -0.135

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00537 at 0.07113% (+0.00238 total last wk)
• 1 Month -0.00100 to 0.10313% (+0.01425 total last wk)
• 3 Month +0.00237 to 0.19000% (+0.01225 total last wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.00512 to 0.27625% (+0.00512 total last wk)
• 1 Year +0.00400 to 0.46550% (+0.05112 total last wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $77B
• Daily Overnight Bank Funding Rate: 0.07% volume: $261B

• Secured Overnight Financing Rate (SOFR): 0.05%, $1,015B
• Broad General Collateral Rate (BGCR): 0.05%, $361B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $338B
• (rate, volume levels reflect prior session)

• TIPS 1Y-7.5Y, $1.751B accepted vs. $4.660B submission
• Next scheduled purchases
• Tue 12/07 1100-1120ET: Tsy 22.5Y-30Y, appr $1.600B
• Wed 12/08 1010-1030ET: Tsy 2.25Y-4.5Y, appr $7.375B
• Thu 12/09 1010-1030ET: Tsy 0Y-2.25Y, appr $10.875B
• Thu 12/09 1100-1120ET: Tsy 10Y-22.5Y, appr $1.425B
• Fri 12/10 1010-1030ET: Tsy 7Y-10Y, appr $2.825B

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $1,487.996B from 74 counterparties vs. $1,475.464B on Friday. Record high remains at 1,604.881B from Thursday, September 30.

PIPELINE: $6B Roche 4Pt Leads Mon's $17B Total Debt Issuance

• Date $MM Issuer (Priced *, Launch #)
• 12/06 $6B #Roche $2B 7Y +55, $2B 10Y +65, $2B 30Y +85
• 12/06 $2.5B #EcoLab Inc 2NC1 +30, 5Y +45, 10Y +70, 30Y +95
• 12/06 $2.25B #Dell Int $1B 20Y +155, $1.25B 30Y +170
• 12/06 $2B #ABN AMRO $1B 8NC7 +110, $1B 15NC10 +190
• 12/06 $1.25B #Baker Hughes $650M 2Y +60, $600M 2Y FRN/SOFR, 5Y +85
• 12/06 $1B #Newmont Corp 10Y +90
• 12/06 $1B DirectTV 5.875% 2027 Tap +100a
• 12/06 $500M #Banco de Chile WNG 10Y +185
• 12/06 $500M #WEC Energy 7Y +85

EGBs-GILTS CASH CLOSE: Italy Easily Outperforms

BTPs impressed to start the week, with Gilts and Bunds little changed, and futures rolling remaining a key theme going into the Eurex last trade date Wednesday.

• Italian 10Y spreads fell sharply following Friday's after-hours surprise ratings upgrade from Fitch (to BBB from BBB-). Conversely, Greek spreads widened following today's announcement of an exchange/buyback with bid deadline Friday.
  
• 10Y Gilt yields dipped to fresh post-Sept lows; 30s to post-Jan lows. BoE Broadbent's comments today don't suggest he will vote imminently for a hike; little market reaction.
• Bunds were little changed, with early weakness (despite weak factory orders data) reversing.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.7bps at -0.726%, 5-Yr is up 0.8bps at -0.626%, 10-Yr is unchanged at -0.388%, and 30-Yr is up 0.6bps at -0.09%.
• UK: The 2-Yr yield is down 0.7bps at 0.468%, 5-Yr is down 1bps at 0.576%, 10-Yr is down 0.9bps at 0.738%, and 30-Yr is down 1.5bps at 0.825%.
• Italian BTP spread down 3.6bps at 126.7bps / Greek up 5.5bps at 165.6bps

FOREX: USDCHF and USDJPY Rise As Risk Recovers, AUD Bounces From Support

• The greenback is broadly stronger to start the week as the USD index shows gains of 0.2%. The strong performance is largely down to firm rallies in both USDCHF (+0.98%) and USDJPY (+0.62%). With Omicron fears subsiding for now, there is a generally supportive tone for risk across the G10 currency space.
• Initial resistance is seen at 113.74 in USDJPY, the 20-day EMA. A breach would ease bearish concerns and signal a possible S/T base. Key resistance though is unchanged at 115.52, the Nov 24 high.
• Despite the general US dollar strength, AUDUSD is in firm positive territory to start the week, recovering 0.65%. Broad AUD gains are noted given the significant bounce against the euro and especially the Yen – AUDJPY +1.33%.
• Naturally, the firmer global equities/oil prices have created more benign conditions for risk-tied FX, however, the outperformance is notable and was likely bolstered by the PBOC easing in the form of a RRR cut. AUDUSD low overnight at 0.6995 came within 4 pips of the November 2020 lows and a key support.
• The Canadian dollar reacted well to the recovery in crude futures, with USDCAD retreating 0.6%, however NZD underperformed the session, extending the NZDUSD decline to 13-month lows.
• China trade data overnight along with the December RBA meeting. Germany will post their ZEW sentiment data before Canada’s Ivey PMI. Markets will remain focused on Wednesday’s Bank of Canada meeting before Friday’s release of US CPI.