MNI ASIA OPEN: 2s10s New Four Decade Lows

EXECUTIVE SUMMARY

• MNI INTERVIEW: US Mortgage Rates Poised To Fall- Bankers Group
• UN: Russia Requests Security Council Meeting On NATO Weapons Supplies To Ukraine

US

US: U.S. mortgage rates look like they have peaked, potentially keeping a floor under home prices even with the economy on the edge of recession, Mortgage Bankers Association Chief Economist Michael Fratantoni told MNI.

• The 30-year rate could decline to about 5.2% at the end of 2023 and to 4.5% by the end of 2024, he said. That would be a turnaround from the jump of almost 4 percentage points from the start of the year to just over 7% in early November. The rate has already dipped to about 6.5% on signs of slower inflation and smaller hikes from the Federal Reserve.
• The Fed is largely expected to step down to a 50bp increase next week and officials are seen indicating a "somewhat" higher rate peak than previously indicated in September at 4.6%. Fratantoni said the Fed's own tightening campaign is what will set up the decline in mortgage rates as policy makers cool the economy. For more see MNI Policy main wire at 1350ET.

EUROPE

UN/RUSSIA: Russia's state-run Tass reporting that the Kremlin has officially requested a meeting of the UN Security Council on 9 December to discuss the provision of NATO weaponry to Ukraine.

• Comes in the wake of several attacks on military bases and other facilities on Russian territory. On 5 December, Russian military claimed that it intercepted Ukrainian drones over military bases hundreds of miles into its territory around the conurbations of Ryazan and Saratov. The incidents saw three Russian service personnel killed and strategic bombers on the ground damaged.
• On 6 December, another long-range attack from Ukrainian drones saw an oil storage tanker at an airfield in the Russian city of Kursk set alight.
• Notably, the drones used in the attack were modified Soviet era Strizh drones, made in the 1970s for target practice, thereby removing Russia's ability to claim NATO equipment is being used to attack Russia directly.

US TSYS: Tsy Yld Curves: New Inverted Lows

Tsy futures inching off late session highs after the bell, modest overall volumes (TYH3 just over 950k at the bell), while yield curves quietly bull flattened to deepest level of inversion since late 1981: 2s10s tapped -84.883 low -- signaling uncertainty over potential for economic recession in 2023.

Reviewing second half trades shows 10Y Block buy added vs. large 5Y sale:

• -19,288 FVH3 108-24.75, sell-through 108-25.5 post-time bid at 1151:17ET, 108-24 last trade, +2 vs. +12,679 TYH3 114-05.5, buy through 114-03.5 post-time offer
• Tsys were see-sawing in relatively narrow range after midday. Tsy support appeared to mirror moves in German Bunds in the first half.
• Limited data this morning as participants plied the sidelines to await Friday's Nov PPI (0.2% MoM est vs. 0.2% prior).
  • US OCT TRADE GAP -$78.2B VS SEP -$74.1B
  • US REDBOOK: NOV STORE SALES +5.7% V YR AGO MO; STORE SALES +5.7% WK ENDED DEC 03 V YR AGO WK
• Fed funds implied hike for Dec'22 +0.6bp from this morning at 51.8bp, Feb'23 cumulative 89.5bp to 4.730% (Mar'23 106.8bp to 4.903%), terminal slips to 4.97% in Jun'23 vs. 5.0% earlier.

OVERNIGHT DATA

• US OCT TRADE GAP -$78.2B VS SEP -$74.1B

• US REDBOOK: NOV STORE SALES +5.7% V YR AGO MO
• US REDBOOK: STORE SALES +5.7% WK ENDED DEC 03 V YR AGO WK

• CANADIAN OCT TRADE BALANCE CAD +1.2 BILLION
• CANADA OCT EXPORTS CAD 67.0 BLN, IMPORTS CAD 65.8 BLN
• CANADA REVISED SEP MERCHANDISE TRADE BALANCE CAD +0.6 BLN

MARKETS SNAPSHOT

Key late session market levels:

• DJIA down 435.35 points (-1.28%) at 33509.75
• S&P E-Mini Future down 66.75 points (-1.67%) at 3936
• Nasdaq down 233.1 points (-2.1%) at 11005.56
• US 10-Yr yield is down 6.6 bps at 3.5077%
• US Mar 10Y are up 16.5/32 at 114-12
• EURUSD down 0.0025 (-0.24%) at 1.0466
• USDJPY up 0.14 (0.1%) at 136.89
• WTI Crude Oil (front-month) down $2.46 (-3.2%) at $74.48
• Gold is up $3.73 (0.21%) at $1772.38

US TSY FUTURES CLOSE

• 3M10Y -11.555, -83.051 (L: -83.7 / H: -75.527)
• 2Y10Y -2.44, -84.417 (L: -84.883 / H: -78.865)
• 2Y30Y -2.328, -83.22 (L: -83.971 / H: -76.921)
• 5Y30Y -1.274, -20.959 (L: -22.377 / H: -17.074)
• Current futures levels:
• Mar 2Y up 2.75/32 at 102-23.625 (L: 102-19.5 / H: 102-24.375)
• Mar 5Y up 8.75/32 at 108-30.75 (L: 108-20.25 / H: 108-31.75)
• Mar 10Y up 16.5/32 at 114-12 (L: 113-25 / H: 114-13)
• Mar 30Y up 1-20/32 at 130-14 (L: 128-24 / H: 130-15)
• Mar Ultra 30Y up 2-08/32 at 143-10 (L: 141-05 / H: 143-12)

‌‌US 10YR FUTURES TECHS: (H3)‌‌ Remains Below Last Week’s High

• RES 4: 115-26 2.00 proj of the Oct 21 - 27 - Nov 3 price swing
• RES 3: 115-03 1.764 proj of the Oct 21 - 27 - Nov 3 price swing
• RES 2: 115-00 High Sep 19
• RES 1: 114-28+ High Dec 2 and the bully trigger
• PRICE: 114-02+ @ 15:33 GMT Dec 6
• SUP 1: 113-21+/112-30 Low Dec 2 / 50-day EMA
• SUP 2: 112-11+ Low Nov 21 and a key short-term support
• SUP 3: 112-05+ Low Nov 14
• SUP 4: 110-22 Low Nov 10

Treasury futures remain below last week’s high of 114-28+ - a key short-term resistance. The latest pullback is considered corrective for now with support at 112-30, the 50-day EMA. This represents an important short-term level. If breached, it would expose key trend support at 112-11+, the Nov 21 low where a break would highlight a stronger reversal. 114-28+ is the trigger for a resumption of the uptrend.

US EURODOLLAR FUTURES CLOSE

• Dec 22 +0.003 at 95.178
• Mar 23 +0.015 at 94.855
• Jun 23 +0.035 at 94.820
• Sep 23 +0.055 at 94.965
• Red Pack (Dec 23-Sep 24) +0.040 to +0.060
• Green Pack (Dec 24-Sep 25) +0.045 to +0.060
• Blue Pack (Dec 25-Sep 26) +0.070 to +0.080
• Gold Pack (Dec 26-Sep 27) +0.080 to +0.090

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00058 to 3.81729% (+0.00186/wk)
• 1M +0.00414 to 4.22143% (+0.03657/wk)
• 3M +0.01114 to 4.73457% (+0.00200/wk)*/**
• 6M +0.01514 to 5.20200% (+0.05286/wk)
• 12M +0.05171 to 5.56414% (+0.13471/wk)
• * Record Low 0.11413% on 9/12/21; ** New 14Y high: 4.77857% on 11/30/22

• Daily Effective Fed Funds Rate: 3.83% volume: $107B
• Daily Overnight Bank Funding Rate: 3.82% volume: $287B

• Secured Overnight Financing Rate (SOFR): 3.81%, $1.096T
• Broad General Collateral Rate (BGCR): 3.78%, $415B
• Tri-Party General Collateral Rate (TGCR): 3.78%, $400B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage bounces to $2,111.465B w/ 97 counterparties vs. $2,093.647B in the prior session. Prior record high stands at $2,425.910B on Friday, September 30.

EGBs-GILTS CASH CLOSE: Rally After Weak Open

Bunds and Gilts strengthened Tuesday, with German yields leading the way lower in a largely risk-off session (stocks off ~0.7%).

• Bunds recovered from early weakness following stronger-than-expected German factory orders data. Gilts followed suit, rallying most of the session.
• ECB's Lane said in an interview published pre-open that it's likely eurozone inflation is close to peaking and that while more hikes will be necessary, "a lot has been done already"; Herodotou said the ECB was "very near the neutral range".
• Periphery EGB spreads largely kept pace, with BTP/Bund spreads about 2bp tighter, and GGBs more than 5bp tighter.
• The December to March Eurex futures roll is nearly complete ahead of Thursday's deadline.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.6bps at 2.064%, 5-Yr is down 7.2bps at 1.817%, 10-Yr is down 8bps at 1.8%, and 30-Yr is down 4.9bps at 1.63%.
• UK: The 2-Yr yield is down 2.5bps at 3.304%, 5-Yr is down 1.6bps at 3.229%, 10-Yr is down 2.8bps at 3.076%, and 30-Yr is up 0.2bps at 3.449%.
• Italian BTP spread down 2bps at 185.3bps / Greek down 5.5bps at 194.9bps

FOREX: Lower Equities Boost Greenback Despite Fix-Induced Dip

• Pressure on equities throughout Tuesday’s session ultimately boosted the US dollar, however, flows potentially linked to the WMR fix at 1600GMT provided solid two-way price action.
• The USD index (+0.30%) had traded with a positive tone throughout early US trade, slowly erasing previous losses amid constant pressure on major equity indices. However, in the period roughly 30 minutes before and up to the WMR fixing window, the index dropped roughly 45 pips. Most noticeable in G10 was the spike in GBP, with cable rallying sharply from around 1.2155 to 1.2269 and EUR/GBP extending slippage to a new daily low of 0.8576. GBP futures saw activity ramp higher heading into the fix, with near 4000 futures contracts trading inside 60 seconds - cash equivalent of around $290mln.
• Following this short-term dynamic, order was restored and the greenback regained its upward bias as equities extended their intra-day declines with the S&P 500 slipping as much as 2% approaching the APAC crossover.
• Losses have been broad based across G10 with the Canadian dollar the biggest victim, falling 0.55% ahead of tomorrow’s BOC rate decision. Tomorrow's decision is seen as a tight call between another downshift to 25bp or sticking with a 50bps hike.
• The latest climb for USDCAD sees it breach noted resistance at 1.3646 (Nov 29 high). Next up is 1.3690 (61.8% retracement of Oct 13 – Nov 15 bear leg) before 1.3808, the Nov 3 high and a key resistance.
• Australian GDP overnight as well as Chinese trade balance figures highlight the data docket before the Bank of Canada decision, due later on Wednesday.

Wednesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
07/12/2022	0030/1130	***		AU	Quarterly GDP
07/12/2022	0430/1000			IN	India RBI Rate Decision
07/12/2022	0645/0745	**		CH	Unemployment
07/12/2022	0700/0800	**		DE	Industrial Production
07/12/2022	0700/0800	***		SE	GDP
07/12/2022	0700/0800	**		SE	Private Sector Production
07/12/2022	0700/0700	*		UK	Halifax House Price Index
07/12/2022	0710/0810			EU	ECB Lane Speech at China FX Global Perspective
07/12/2022	0745/0845	*		FR	Foreign Trade
07/12/2022	0745/0845	*		FR	Current Account
07/12/2022	0900/1000	*		IT	Retail Sales
07/12/2022	1000/1000	*		UK	Index Linked Gilt Outright Auction Result
07/12/2022	1000/1100	*		EU	Employment
07/12/2022	1000/1100	***		EU	GDP (final)
07/12/2022	1200/0700	**		US	MBA Weekly Applications Index
07/12/2022	-	***		CN	Trade
07/12/2022	1300/1400			EU	ECB Panetta Speech at at LBS-AQR Insight Summit
07/12/2022	1330/0830	**		US	Non-Farm Productivity (f)
07/12/2022	1500/1000	***		CA	Bank of Canada Policy Decision
07/12/2022	1530/1030	**		US	DOE weekly crude oil stocks
07/12/2022	2000/1500	*		US	Consumer Credit
08/12/2022	2350/0850	**		JP	GDP (r)