EXECUTIVE SUMMARY
- MNI BRIEF: Higher For Longer If Inflation Stuck- Fed's Barkin
- MNI US TSYS/SUPPLY: MNI UST Issuance Deep Dive: Jan 2025
- MNI US-JAPAN: Biden Officially Blocks US Steel Acquisition
- MNI SOUTH KOREA: Court Sets Impeachment Trial Dates; Standoff Prevents Yoon Arrest
- MNI US DATA: Solid Dec ISM Manufacturing Survey Points To Slowly Improving Activity
MNI BRIEF: Higher For Longer If Inflation Stuck- Fed's Barkin
Federal Reserve Bank of Richmond President Tom Barkin said Friday he would keep interest rates restrictive for longer if inflation gets stuck but so far the path has been toward 2%. After a 100-basis point "recalibration" of the benchmark rate in 2024 it would be sensible to cut again if new data show inflation has sustainably fallen to 2% or if weak demand ensured inflation would fall too, he told reporters on the sidelines of a Maryland banking conference.
MNI US TSYS: Near Late Friday Lows
- Treasury futures looked to finish near late session lows Friday, early support evaporating after the December manufacturing ISM survey beat expectations, but still pointed to soft if improving sectoral dynamics. The headline reading of 49.3 was an improvement from 48.4 prior and a 9-month high, besting the survey expectation of 48.4.
- Tsy curves bear steepened briefly before retreating mildly flatter in the second half. In turn, projected rate cuts through mid-2025 look steady to lower vs. this morning's levels (*) as follows: Jan'25 steady at -2.8bp, Mar'25 -13.2bp (-14.4bp), May'25 -17.8bp (-19.5bp), Jun'25 -26.5bp (-28.2bp).
- Focus on next week: economic data and Treasury supply has been moved forward to accommodate next Thursday's "day of mourning" to honor President Carter. The Federal holiday sees most markets closed, the exception so far is CME rates that will operate on a shortened session.
- Next Thursday's weekly jobless and continuing claims will be released on Wednesday according to the Dept of Labor site LINK
NEWS
MNI US-JAPAN: Biden Officially Blocks US Steel Acquisition
US President Joe Biden has officially blockedthe proposed acquisition of US Steel by Japanese firm Nippon Steel. The move, which was widely expected despite an attempt by Nippon Steel to sweeten the deal by offering the US government a veto over production cuts, is likely to result in litigation and potentially harmful knock-on effects to the US-Japan bilateral relationship. The acquisition was also opposed by President-elect Donald Trump on the election campaign trail.
MNI SOUTH KOREA: Court Sets Impeachment Trial Dates; Standoff Prevents Yoon Arrest
The Constitutional Court has announced the five dates that it will hold hearings as part of the impeachment trial of suspended President Yoon Suk-yeol. In an effort to speed up the process amid political paralysis, the court will hear arguments on Tuesdays and Thursdays starting on 14 January. With the Lunar New Year holidays excluded, the final hearing will take place on Tuesday 4 February. The number of hearings could be increased depending on the number of witnesses called by each side to give evidence.
MNI AUSTRIA: Liberal NEOS Leave Coalition Talks Saying 'No Progress Possible"
The liberal NEOS party formally withdrew from coalition talks with Chancellor Karl Nehammer's conservative Austrian People's Party (ÖVP) and the centre-left Social Democrats (SPÖ), citing lack of progress and inflexibility in negotiations. This leaves the ÖVP and SPÖ with the option of seeking to form a gov't with the environmentalist Greens, or forming a two-party 'grand coalition'.
MNI FRANCE: Ministers To Sound Out w/Parl't Groups On Budget 'Sticking Points'
Prime Minister Francois Bayrou's Council of Ministers met for the first time for the traditional New Year's breakfast at the Ministry of the Interior in Place Beauvau. Bayrou claimed "There is a way out" of the ongoing instability that has dogged French politics since the snap parliamentary election in summer 2024 that resulted in a deeply divided National Assembly, unable to reach agreement on passing a budget. Bayrou: "If we are united, we will be able to move a certain number of obstacles in front of us."
(BBG) China Lets Yuan Weaken After Defending 7.3 Per Dollar for Weeks
The onshore yuan weakened past a level that China had been defending throughout December, opening up room for the managed currency to drop further amid a sluggish economy. The yuan breached the psychological milestone of 7.3 per dollar for the first time since late 2023, amid concerns over China’s economic struggles and a widening bond yield discount to the US. The move came even as the central bank maintained its support for the currency with its daily reference rate on Friday.
(BBG) BlackRock’s Bitcoin ETF Posts Record Outflow After Banner Year
Investors yanked a net $333 million from BlackRock Inc.’s iShares Bitcoin Trust ETF (IBIT) on Thursday, the most withdrawn from the record-breaking fund since its launch. The fund also suffered a third consecutive day of outflows, its longest losing streak, according to data compiled by Bloomberg.
OVERNIGHT DATA
MNI US DATA: Solid Dec ISM Manufacturing Survey Points To Slowly Improving Activity
The December manufacturing ISM survey beat expectations, but still pointed to soft if improving sectoral dynamics.
- The headline reading of 49.3 was an improvement from 48.4 prior and a 9-month high, besting the survey expectation of 48.4.
- The sub-50 reading still indicates a contracting manufacturing industry in December, in line with the S&P Global PMI, MNI Chicago PMI, and various regional Fed indices, but activity appears to have improved since a summer bottom. A boom does not appear to be in the offing, though the potential front-loading of production to dampen the impact of tariffs and other policy changes is a dynamic worth watching in the coming months.
- The internals of the survey looked solid as well for the most part, with several categories printing multi-month highs.
- In the most encouraging sign of improving momentum, New Orders picked up for the 4th consecutive month to 52.5 (from 50.4 prior), equaling the best reading of the year seen in January, with New Orders minus Inventories ticking a little higher. Production rose strongly, to 50.3 (from 46.8 prior), an 8-month high.
MNI US TSYS/SUPPLY: MNI UST Issuance Deep Dive: Jan 2025
- MNI's latest Deep Dive of US Treasury issuance has been published and emailed to subscribers. PDF HERE
- MNI's review includes a calendar of upcoming auctions and buyback operations.
- Expectations remain firmly that there will be no upsizings to Treasury coupon auctions until later in 2025 at the earliest, and perhaps not until 2026 (sizes were increased between Aug 2023 and May 2024, and held steady since).
- The Fed’s expected conclusion to balance sheet runoff in Q1 or Q2 could help by moderating net financing requirements. But when the upsizings are announced, potentially beginning as soon as the August 2025 refunding, they are expected to go on for multiple quarters.
- Auction Results: December’s nominal coupon auctions were mixed, with three out of seven auctions trading-through, all of which saw a positive reading on MNI’s Relative Strength Indicator (RSI). The 2Y Note auction was on-the-screws, and the remaining 3 auctions (3, 20, and 30-year auctions) tailed.
- Upcoming Supply: Issuance resumes next week with sales of $58B in 3Y Note, $39B in 10Y Note (reopen), and $22B in 30Y Bond (reopen).
- January is set to see $315B in nominal Treasury coupon sales, in addition to $20B in 10Y TIPS and $30B FRN for a total of $365B – slightly below the Oct and Nov totals of $369B which were joint-highest since Oct 2021.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA up 310.23 points (0.73%) at 42704.3
S&P E-Mini Future up 68.75 points (1.16%) at 5985.5
Nasdaq up 317.9 points (1.6%) at 19599.85
US 10-Yr yield is up 3.7 bps at 4.5955%
US Mar 10-Yr futures are down 5.5/32 at 108-20.5
EURUSD up 0.0038 (0.37%) at 1.0303
USDJPY down 0.35 (-0.22%) at 157.15
WTI Crude Oil (front-month) up $0.9 (1.23%) at $74.03
Gold is down $18.26 (-0.69%) at $2639.68
European bourses closing levels:
EuroStoxx 50 down 46.43 points (-0.94%) at 4871.45
FTSE 100 down 36.11 points (-0.44%) at 8223.98
German DAX down 118.58 points (-0.59%) at 19906.08
French CAC 40 down 111.54 points (-1.51%) at 7282.22
US TREASURY FUTURES CLOSE
3M10Y +5.098, 29.348 (L: 20.805 / H: 29.551)
2Y10Y +0.147, 31.889 (L: 29.758 / H: 32.97)
2Y30Y +0.288, 53.851 (L: 51.04 / H: 55.316)
5Y30Y +0.1, 40.678 (L: 39.204 / H: 41.914)
Current futures levels:
Mar 2-Yr futures down 1.625/32 at 102-24.125 (L: 102-23.625 / H: 102-27.125)
Mar 5-Yr futures down 4/32 at 106-7 (L: 106-06.25 / H: 106-15)
Mar 10-Yr futures down 5.5/32 at 108-20.5 (L: 108-19.5 / H: 109-01.5)
Mar 30-Yr futures down 8/32 at 113-16 (L: 113-15 / H: 114-11)
Mar Ultra futures down 11/32 at 118-9 (L: 118-08 / H: 119-18)
MNI US 10YR FUTURE TECHS: (H5) Trend Needle Points South
- RES 4: 112-02 Low Oct 14
- RES 3: 111-20+ High 6 and the bull trigger
- RES 2: 110-28 50-day EMA
- RES 1: 110-03+ 20-day EMA
- PRICE: 108-24+ @ 16:03 GMT Jan 03
- SUP 1: 108-12 Low Dec 30
- SUP 2: 108-00 1.500 proj of the Oct 1 - 14 - 16 price swing
- SUP 3: 107-27+ 1.0% 10-dma envelope
- SUP 4: 107-19+ 1.618 proj of the Oct 1 - 14 - 16 price swing
The trend condition in Treasury futures remains bearish despite the intraday rally into the Monday close. These short-term gains are considered corrective below the 110-03+ 20-day EMA. Last week’s sell-off reinforces the current bear cycle. The contract has traded through key short-term support and the bear trigger at 109-02+, the Nov 15 low. The breach confirms a resumption of the downtrend and opens 108+12+, a Fibonacci projection.
SOFR FUTURES CLOSE
Mar 25 steady00 at 95.815
Jun 25 -0.015 at 95.930
Sep 25 -0.025 at 95.990
Dec 25 -0.030 at 96.025
Red Pack (Mar 26-Dec 26) -0.04 to -0.035
Green Pack (Mar 27-Dec 27) -0.035 to -0.03
Blue Pack (Mar 28-Dec 28) -0.03 to -0.025
Gold Pack (Mar 29-Dec 29) -0.025 to -0.02
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.01013 to 4.31543 (-0.03952/wk)
- 3M -0.00236 to 4.29369 (-0.03509/wk)
- 6M +0.00415 to 4.24195 (-0.04298/wk)
- 12M +0.00230 to 4.16471 (-0.07460/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.40% (-0.09), volume: $2.501T
- Broad General Collateral Rate (BGCR): 4.36% (-0.09), volume: $853B
- Tri-Party General Collateral Rate (TGCR): 4.36% (-0.09), volume: $820B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $106B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $264B
FED Reverse Repo Operation
Well off Tuesday's year-end high of $473.460B (highest level since June 28) RRP usage continues to recede, $237.377B this afternoon from $239.858 Thursday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties retreats to 57 from 64 prior.
PIPELINE
$1B to price Friday, $15.6B total in the first two days of January
- Date $MM Issuer (Priced *, Launch #)
- 01/03 $500M #MassMutual 5Y +57
- 01/03 $500M #Sammons Financial 3Y +78
- $14.6B Priced Thursday
- 01/02 $3.5B *Credit Agricole $1.25B 4NC3 +95, $500M 4NC3 SOFR+113, $1.75B 11NC10 +130
- 01/02 $2.5B *GM Financial $1.2B 5Y +100, $300M 5Y SOFR+129, $1B 10Y +135
- 01/02 $2.5B *Ford Motor Cr $1.25B -5Y +150, $1.25B 10Y +193
- 01/02 $2.25B *Athene Global $1.1B 2Y +70, $400M 2Y SOFR+83, $750M 5Y +100
- 01/02 $1.1B *Duke Energy $400M 5Y +50, $700M 10Y +72
- 01/02 $1B *Ares Capital +7Y +150
- 01/02 $750M *Entergy Louisiana 30Y +103
- 01/02 $500M *Principle Life Global 3Y +55
- 01/02 $500M *MetLife Global 5Y +57
- ** $43.15B Total issuance for December 2024 - better than December 2023 total of $28.1B.
- ** $1.957T total for 2024 -- highest since 2020 record $2.197T
MNI BONDS: EGBs-GILTS CASH CLOSE: Short Ends Underperform
Gilts easily outperformed Bunds Friday, with short ends underperforming on respective curves.
- Hawkish repricing in Euro rates stood out, amid EUR weakness and ahead of next week's Euro inflation data. Implied ECB rate cuts were pared by around 7bp through 2025 (around 105bp seen through the year); BOE-implied remained relatively steady at 58bp (2bp less than the prior session).
- A more solid-than-expected US ISM Manufacturing survey upped the pressure toward the European cash close.
- In European data, German labour market data on balance showed some signs of revival. BOE November Money and Credit data indicated UK loan approvals were softer compared to October and consumer credit remains weak.
- With the short end weakening, the German curve bear flattened sharply, with the UK's lightly twist flattening.
- Periphery EGB spreads were little changed, though notably OATs underperformed for another session amid continued perceptions of fiscal and political risks.
- There are no sovereign credit rating updates scheduled after Friday's market close, but MNI's ratings calendar for 2025 is here.
- Next week's schedule is highlighted by the December Eurozone inflation round - MNI's preview is here.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 6.1bps at 2.161%, 5-Yr is up 5.9bps at 2.23%, 10-Yr is up 4.6bps at 2.425%, and 30-Yr is up 3.2bps at 2.653%.
- UK: The 2-Yr yield is up 1.2bps at 4.422%, 5-Yr is up 0.6bps at 4.385%, 10-Yr is down 0.2bps at 4.593%, and 30-Yr is down 0.9bps at 5.156%.
- Italian BTP spread down 0.1bps at 116.3bps / French OAT up 2.4bps at 87.4bps
MNI FOREX: USD Index Set For Near 1% Advance This Week
- The greenback is a touch softer on Friday as markets have displayed much more contained ranges approaching the weekend close. Despite the USD index slipping back to 109.00, the DXY looks set to post another 0.9% advance this week, and post its highest close since November 2022.
- Most notable in G10 has been the breach of 1.0335 for EURUSD, as the pair extends the post-election decline to ~5.8%. Since breaking on Thursday, spot has not been back above this level, which now becomes immediate resistance. While there are small supports noted at 1.0198, and 1.0181 (the 2.0% 10-dma envelope), chart levels remain scant between here and parity, which once again becomes a focus going forward.
- Options markets now price an implied probability of 49% for the pair to touch 1.00 in the coming three months (up from 28% a week ago), and a 21% probability (up from 13% a week ago) of the pair closing below parity at end-Q1.
- GBPUSD weakness also stood out to start the year, with the pair sinking below 1.2400 to print an 8-month low of 1.2353. Very subdued price action on Friday keeps the medium-term downtrend firmly intact, opening 1.2300, the Apr 22 ‘24 low and an important chart point.
- USDCAD has risen 0.4% on the session and stands just below cycle highs at 1.4460. We pointed out that the latest pause appeared to be a flag formation - a bullish continuation signal. Immediate sights are on 1.4508 next, a Fibonacci projection level, before 1.4539.
- Notably USD/CNH rallied to levels above 7.36 once more, close to cycle highs amid concerns over China’s economic struggles. Potentially more significantly, the onshore USD/CNY rate broke above 7.3000 - a long held and long-tested level over the past week or so.
- Eurozone inflation readings will be a focus at the beginning of next week, and US ISM Services PMI and JOLTS data headline the docket in the US on Tuesday.
MONDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 06/01/2025 | 0730/0830 | ** |  CH | Retail Sales |
| 06/01/2025 | 0815/0915 | ** |  ES | S&P Global Services PMI (f) |
| 06/01/2025 | 0815/0915 | ** | ES | S&P Global Composite PMI (final) |
| 06/01/2025 | 0845/0945 | ** |  IT | S&P Global Services PMI (f) |
| 06/01/2025 | 0845/0945 | ** | IT | S&P Global Composite PMI (final) |
| 06/01/2025 | 0850/0950 | ** |  FR | S&P Global Services PMI (f) |
| 06/01/2025 | 0850/0950 | ** | FR | S&P Global Composite PMI (final) |
| 06/01/2025 | 0855/0955 | ** |  DE | S&P Global Services PMI (f) |
| 06/01/2025 | 0855/0955 | ** | DE | S&P Global Composite PMI (final) |
| 06/01/2025 | 0900/1000 | ** |  EU | S&P Global Services PMI (f) |
| 06/01/2025 | 0900/1000 | ** | EU | S&P Global Composite PMI (final) |
| 06/01/2025 | 0930/0930 | ** |  GB | S&P Global Services PMI (Final) |
| 06/01/2025 | 0930/0930 | *** | GB | S&P Global/ CIPS UK Final Composite PMI |
| 06/01/2025 | 1300/1400 | *** | DE | HICP (p) |
| 06/01/2025 | 1445/0945 | *** |  US | S&P Global Services Index (final) |
| 06/01/2025 | 1445/0945 | *** | US | S&P Global US Final Composite PMI |
| 06/01/2025 | 1500/1000 | ** | US | Factory New Orders |
| 06/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 06/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 06/01/2025 | 1800/1300 | *** | US | US Note 03 Year Treasury Auction Result |
| 07/01/2025 | 0001/0001 | * | GB | BRC-KPMG Shop Sales Monitor |
| 07/01/2025 | 0030/1130 | * |  AU | Building Approvals |