EXECUTIVE SUMMARY
- MNI US TSYS/OVERNIGHT REPO: Secured Rate Jump In Focus Headed Into Year-End
- MNI US DATA: 3+Year High In Continuing Claims Reaffirms That Labor Market Is Cooling
US
MNI US TSYS/OVERNIGHT REPO: Secured Rate Jump In Focus Headed Into Year-End
The NY Fed's data confirms secured rates jumped sharply on Dec 24, with a 4.40% SOFR print, up from 4.31% on Dec 23 (Wrightson ICAP had estimated 4.38% and even that lower estimate would have meant "overnight GC rates tightened even more than we expected").
- It is of course coming up on month/year/quarter-end so while rates may subside slightly in today's session, upside pressures are expected to re-emerge as soon as Friday. The September end-quarter episode, in which secured rates jumped ~20bp, is on the Fed's mind - but overall they seem calm about any potential pressures - NY Fed President Williams said on Dec 20:
- "I think there's ample liquidity to see the financial system... I think we will see a little bit more pressure in the repo markets, as we were referring to at the end of the third quarter. We'll probably see that year end. What I'm seeing right now is more of the pattern we saw before. We had just super abundant reserves, little bit more short term volatility in repo markets. One is not spilling into the Fed funds rate. It's not in any way affecting the interest rate that we're targeting at the FOMC. And the second is, these are very short lived. So I feel that we will probably see some pressures, but probably the kind that we saw, say, at the end of the third quarter, or maybe a little bit more. One sign that things are, you know, gives me some reassurances, clearly, market participants in anticipating some pressures there have been preparing for that. We're seeing, you know, taking term repo, other things to make sure they're well positioned for the year end and not caught off guard, but we'll watch and see. But again, I feel like we're well positioned in terms of the liquidity and the tools that we have."
- The Fed has seemed confident reserves remain abundant and it can continue QT until it sees particular warning signs of reserve scarcity - year-end issues present signs of strain but aren't considered to be signs of reserve scarcity in their own right. Note that the NY Fed is upping the ante for this year-end period: In addition to its daily standing repo operation at 1330-1345ET, it will offer another one between 0815-0830ET daily from Dec 30 through Jan 3, while "the aggregate operation limit of $500 billion will apply to the combined daily operations." That came after the September episode when standing repo facility takeup soared.
- For its part, Wrightson ICAP notes "in many ways, the market seems reasonably well prepared for the year-end statement date. However, the artificial statement-date incentives created by current regulatory and financing reporting practices will inevitably lead to significant upside distortions in repo rates."
MNI US TSYS: Near Late Session Highs, Post-Auction Sentiment Improved
- US markets returned from Christmas holiday to weaker stocks and rates Thursday, 10Y yield climbing to 4.6393% high ) early May levels in early trade. Lower volumes on the day with European markets still closed for the Christmas holiday.
- Limited data reaction: Initial jobless claims came out near steady in the Dec 21 week, coming in at 219k (220k prior, unrevised), thus coming in a little below the 223k expected. However, continuing claims (Dec 14 week) were more mixed: the 1,910k was above the 1,881k expected but this was offset by a 13k downward revision to prior (1,864k).
- Treasury futures gapped higher after the strong $44B 7Y note auction stopped 2.2bp through with high yield of 4.532% vs. 4.554% WI, indirect take-up surged to a new record high of 87.88% from 64.08 prior (this years low).
- The Mar'25 10Y contract climbed to 108-22 high (+4). Initial technical resistance still well above at 110-03.5 (20D EMA). Curves retreated from earlier steeper levels, currently mixed: 2s10s -0.583 at 24.425 (23.998 low vs. 27.611 high), 5s30s +1.662 at 32.778 (30.154 low / 33.404 high).
- Friday data calendar: Advance Goods Trade Balance (-$101.3B, -$98.3B prior rev), Wholesale Inventories MoM (0.2%, 0.1%) and Retail Inventories MoM (0.1%, 0.3%) at 0830ET.
OVERNIGHT DATA
MNI US DATA: 3+Year High In Continuing Claims Reaffirms That Labor Market Is Cooling
Initial jobless claims were steady in the Dec 21 week, coming in at 219k (220k prior, unrevised), thus coming in a little below the 223k expected. However, continuing claims (Dec 14 week) were more mixed: the 1,910k was above the 1,881k expected but this was offset by a 13k downward revision to prior (1,864k). The current seasonally-adjusted continuing claims level is the highest since November 2021, though, with the 46k rise the 2nd-biggest of the year.
- The trends in each series remain indicative of a labor market that is cooling without any signs of significant deterioration.
- The 4-week average of initial claims ticked up for the 4th consecutive week but at 227k is below the 230+k seen in the summer, and weekly prints around current levels suggest that the trend is moderating anyway.
- The rise in continuing claims level is more concerning - it does not appear to be the result of an undue seasonal adjustment (NSA was +95k to 1,959k), and as noted this is the highest reading in 3+ years despite no clear idiosyncratic driver (California was the biggest NSA driver, but not unusually for this week of the year, while Hurricane-hit states continue to see claims diminish).
- We will see in coming weeks if the continuing data is a one-off or a sign of a more significant deterioration. In general it underpins the narrative of a softening, lower-turnover labor market.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 1.61 points (0%) at 43293.48
S&P E-Mini Future down 0.75 points (-0.01%) at 6096.75
Nasdaq up 17.5 points (0.1%) at 20047.66
US 10-Yr yield is down 1.2 bps at 4.5766%
US Mar 10-Yr futures are up 2.5/32 at 108-20.5
EURUSD up 0.0012 (0.12%) at 1.0419
USDJPY up 0.57 (0.36%) at 157.91
WTI Crude Oil (front-month) down $0.57 (-0.81%) at $69.53
Gold is up $18.8 (0.72%) at $2635.67
US TREASURY FUTURES CLOSE
3M10Y -1.928, 23.688 (L: 21.272 / H: 30.175)
2Y10Y -0.377, 24.631 (L: 23.801 / H: 27.611)
2Y30Y +0.825, 43.151 (L: 41.49 / H: 45.994)
5Y30Y +1.764, 32.88 (L: 30.154 / H: 33.404)
Current futures levels:
Mar 2-Yr futures up 0.25/32 at 102-21.375 (L: 102-19.125 / H: 102-21.75)
Mar 5-Yr futures up 1.25/32 at 106-4 (L: 105-28.5 / H: 106-04.75)
Mar 10-Yr futures up 3/32 at 108-21 (L: 108-06.5 / H: 108-22)
Mar 30-Yr futures up 1/32 at 113-29 (L: 113-03 / H: 114-02)
Mar Ultra futures steady at at 119-14 (L: 118-11 / 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: 108-22 @ 1500 ET Dec 24
- SUP 1: 108-13+ Low Dec 24
- SUP 2: 108-12+ 1.382 proj of the Oct 1 - 14 - 16 price swing
- SUP 3: 108-00 1.500 proj of the Oct 1 - 14 - 16 price swing
- SUP 4: 107-19+ 1.618 proj of the Oct 1 - 14 - 16 price swing
The trend condition in Treasury futures remains bearish, confirmed by the return lower on December 24th. For now, short-term gains are considered corrective. 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. On the upside, initial firm resistance is at 110-03+, the 20-day EMA.
SOFR FUTURES CLOSE
Mar 25 -0.005 at 95.80
Jun 25 steady00 at 95.895
Sep 25 steady00 at 95.955
Dec 25 steady00 at 95.985
Red Pack (Mar 26-Dec 26) +0.005 to +0.010
Green Pack (Mar 27-Dec 27) +0.015 to +0.015
Blue Pack (Mar 28-Dec 28) +0.015 to +0.020
Gold Pack (Mar 29-Dec 29) +0.015 to +0.020
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00686 to 4.34464 (+0.00810/wk)
- 3M -0.00200 to 4.32466 (-0.00276/wk)
- 6M -0.00258 to 4.28209 (+0.00588/wk)
- 12M -0.00078 to 4.24026 (+0.01629/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.40% (+0.09), volume: $2.282T
- Broad General Collateral Rate (BGCR): 4.39% (+0.10), volume: $858B
- Tri-Party General Collateral Rate (TGCR): 4.39% (+0.10), volume: $828B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $118B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $252B
FED Reverse Repo Operation
RRP usage climbs to $196.818B this afternoon from $180.989B Tuesday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties climbs to 54 from 52 prior.
PIPELINE
- No new issuance since December 12, $43.15B (likely) total issuance for December - still better than December 2023 total of $28.1B.
- $264.545B Q4 total; $1.957T total for 2024 -- the highest since record $2.197T in 2020.
FRIDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 27/12/2024 | 1330/0830 | ** |  US | WASDE Weekly Import/Export |
| 27/12/2024 | 1330/0830 | ** | US | Advance Trade, Advance Business Inventories |
| 27/12/2024 | 1530/1030 | ** | US | Natural Gas Stocks |
| 27/12/2024 | 1600/1100 |  CA | Finance Dept monthly Fiscal Monitor (expected) |