EXECUTIVE SUMMARY
- US TSY: Secretary of the Treasury Janet L. Yellen Sends Letter to Congressional Leadership on the Debt Limit
- MNI SECURITY: Gaza Ceasefire Deal At Risk, Israel Shifts Focus To Yemen
- MNI US DATA: Trade Deficit Edging Wider With Tariffs In View
MNI US TSYS: Tsy Yields Rising to May'25 Highs, Year End Focus
- Treasuries look to finish mostly lower Friday -- back near late overnight lows after briefly recovering this morning. Light holiday volumes persisted with the Mar'25 10Y contract just over 745k into the close on a 10-tic range.
- TYH5 trades 108-13 (-8) at the moment, Tsy 10Y yield climbed to 4.6213% (+.0386bp) - highest since late May'24.
- Tsy curves forged steeper as the short end outperformed: 2s10s +4.274 at 29.303, 5s30s +1.979 at 35.496. Short end bid helped projected rate cuts into early 2025 gain slightly vs. this morning levels (*) as follows: Jan'25 steady at -2.7bp, Mar'25 -13.3bp (-13.1bp), May'25 -18.5bp (-17.7bp), Jun'25 -26.5bp (-25.7bp).
- Treasury futures slowly pared losses after this morning's Wholesale Inventories came out lower than expected w/ modest down-revision to prior, Retail Inventories in-line with expectations while Advanced Goods Trade Balance came out a little wider than October's, with the $102.9B shortfall above $98.3B prior ( and $101.2B expected).
- Markets closed next Wednesday for New Years day, otherwise full sessions for the balance of the week. Data includes MNI PMI and Pending Home Sales Monday, FHFA housing data on Tuesday, weekly claims and construction spending Thursday followed by ISMs on Friday.
US TSY: Secretary of the Treasury Janet L. Yellen Sends Letter to Congressional Leadership on the Debt Limit:
"On January 2, 2025, the new debt limit will be established at the amount of outstanding debt subject to the statutory limit at the end of the previous day. However, on January 2, the outstanding debt subject to the limit is projected to decrease by approximately $54 billion, mostly due to a scheduled redemption of nonmarketable securities held by a federal trust fund associated with Medicare payments. As a result, the debt is currently projected to temporarily decrease, and accordingly, Treasury does not expect that it will be necessary to start taking extraordinary measures on January 2 to prevent the United States from defaulting on its obligations. Treasury currently expects to reach the new limit between January 14 and January 23, at which time it will be necessary for Treasury to start taking extraordinary measures. I respectfully urge Congress to act to protect the full faith and credit of the United States."
NEWS
MNI GERMANY: Steinmeier Dissolves Parliament, Clears Way For Elections On Feb 23
German Federal President Frank-Walter Steinmeier has dissolved the Bundestag, clearing the path for new elections on February 23, 2025. The move was expected following the collapse of Chancellor Olaf Scholz’s three-party government in November. Friedrich Merz of the Christian Democrats, currently holding a robust polling lead, is campaigning on a pro-business, anti-immigration platform, proposing significant tax cuts and welfare reform.
MNI SECURITY: Gaza Ceasefire Deal At Risk, Israel Shifts Focus To Yemen
An emerging agreement between Israel and Hamas to end the war in Gaza is again at risk after Hamas accused Israel of changing the parameters of the deal and Israel claimed Hamas refused to supply a list of surviving hostages. Walla News reports that Israeli Prime Minister Benjamin Netanyahu said, after the Israeli negotiating team returned from talks in Qatar, "it would not be possible to reach a [ceasefire deal] in Gaza without receiving from Hamas a list of the names of the surviving hostages that the organization is willing to release in the first phase of the deal, according to two sources familiar with the details."
(BBG) Poll Shows Labour Shedding Nearly 200 Seats as Reform UK Surges
Britain’s ruling Labour Party would lose nearly 200 seats if elections were held today as the populist Reform UK Party surges, according to a Sunday Times poll. Analysis conducted by the More in Common think tank showed Labour would cede the majority it won in July’s elections, when it amassed 411 seats. Labour would lose 87 seats to the Conservative Party and 67 to Nigel Farage’s Reform. The Scottish National Party would pick up 26 seats, the newspaper said on Sunday.
OVERNIGHT DATA
MNI US DATA: Trade Deficit Edging Wider With Tariffs In View
November's advance trade deficit was a little wider than October's, with the $102.9B shortfall above $98.3B prior ( and $101.2B expected).
- On a year-on-year basis, exports have risen 6% with imports up 7% (non-seasonally adjusted), with the relatively stronger import growth (on a much higher base) leaving the seasonally-adjusted deficit up $14B. A rough estimate puts the 3-month moving average deficit at 4.2% of GDP, which would be the highest seen since August 2022. That squares with an apparent rebound in goods demand and a bottoming of core goods prices, per recent data releases.
- When incorporating positive services net exports, the deficit is closer to 3% of GDP, but we only get that data in the final trade release. October's trade deficit (goods and services) registered $73.8B vs $83.8B in September, about $1B smaller than expected, with a 4% drop in imports outpacing a 1.6% fall in exports. September's nominal trade deficit was the largest ever, so a snap-back was anticipated.
- Within October's import pullback, as we noted after the advance goods trade release last month, the most notable line item was a sharp fall in capital goods: the 8.7% M/M drop (to $78,7B, ex-automotive) was easily the sharpest since the pandemic. That's slightly jarring given that strong capital goods imports appeared to be a signal that US capital investment continued to be robust through Q3, corroborated in part by a stabilization in domestic durable goods orders. As such one positive in November's advance data was a re-stabilization in capital goods imports (+4.3% to $82.1B).
- Of course the big question heading into 2025 is what degree tariffs will be imposed, and how it will impact the trade data. It's plausible we could see the deficit widen in the short run if importers attempt to front-run the imposition of tariffs: there is some evidence for example that Chinese exports picked up sharply in November, with anecdotes of US corporates adjusting their import strategies (see the latest ISM Manufacturing report). In any case the trend since late-2023 has been toward a wider deficit, largely capital-goods driven.
MARKETS SNAPSHOT
Key market levels of markets in late NY trade:
DJIA down 405.53 points (-0.94%) at 42921.43
S&P E-Mini Future down 83.75 points (-1.37%) at 6010.5
Nasdaq down 351.8 points (-1.8%) at 19668.01
US 10-Yr yield is up 3.9 bps at 4.6213%
US Mar 10-Yr futures are down 8/32 at 108-13
EURUSD up 0.0001 (0.01%) at 1.0423
USDJPY down 0.05 (-0.03%) at 157.94
WTI Crude Oil (front-month) up $0.59 (0.85%) at $70.21
Gold is down $20.53 (-0.78%) at $2613.00
European bourses closing levels:
EuroStoxx 50 up 41.02 points (0.84%) at 4898.88
FTSE 100 up 12.79 points (0.16%) at 8149.78
German DAX up 135.55 points (0.68%) at 19984.32
French CAC 40 up 72.68 points (1%) at 7355.37
US TREASURY FUTURES CLOSE
3M10Y +8.67, 32.703 (L: 22.019 / H: 32.703)
2Y10Y +4.27, 29.299 (L: 24.228 / H: 30.341)
2Y30Y +4.918, 48.677 (L: 42.745 / H: 49.812)
5Y30Y +2.037, 35.554 (L: 32.826 / H: 36.319)
Current futures levels:
Mar 2-Yr futures up 0.25/32 at 102-21.5 (L: 102-20.625 / H: 102-23)
Mar 5-Yr futures down 3.25/32 at 106-0.75 (L: 106-00.5 / H: 106-06.5)
Mar 10-Yr futures down 8/32 at 108-13 (L: 108-13 / H: 108-23)
Mar 30-Yr futures down 23/32 at 113-7 (L: 113-06 / H: 114-01)
Mar Ultra futures down 33/32 at 118-14 (L: 118-13 / H: 119-16)
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: 108-20 @ 1145 ET Dec 27
- 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 +0.020 at 95.815
Jun 25 +0.025 at 95.920
Sep 25 +0.010 at 95.965
Dec 25 +0.005 at 95.990
Red Pack (Mar 26-Dec 26) -0.03 to -0.005
Green Pack (Mar 27-Dec 27) -0.045 to -0.035
Blue Pack (Mar 28-Dec 28) -0.055 to -0.05
Gold Pack (Mar 29-Dec 29) -0.065 to -0.055
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.01237 to 4.35701 (+0.02047/wk)
- 3M +0.00412 to 4.32878 (+0.00136/wk)
- 6M +0.00284 to 4.28493 (+0.00872/wk)
- 12M -0.00095 to 4.23931 (+0.01534/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.53% (+0.13), volume: $2.320T
- Broad General Collateral Rate (BGCR): 4.50% (+0.11), volume: $867B
- Tri-Party General Collateral Rate (TGCR): 4.50% (+0.11), volume: $814B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $128B
- Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $261B
FED Reverse Repo Operation - Usage Surge Ahead Year End
RRP usage surged to $268.739B this afternoon from $196.818B Thursday. Compares to $98.356B on Friday, December 20 - the lowest level since mid-April 2021. The number of counterparties climbs to 63 from 54 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.
MNI BONDS: EGBs-GILTS CASH CLOSE: Steepening Selloff Resumes Post-Holiday
European yields rose Friday in the return to trading from the Christmas holidays, with periphery EGB spreads tightening as Bunds underperformed Gilts.
- Much of the initial weakness in the re-open was due to catch-up with US Treasuries (both pre-and post-Dec 24/25 trade) after the reopen
- But EGBs also suffered from higher energy prices after Russian President Putin suggested gas flows through Ukraine might not continue into the new year.
- The UK and German curves bear steepened on the day; German 2s10s are now at the steepest since October 2022. 10Y Bund yields held below the 2.40% level but saw their highest close in 6 weeks, and Gilts the highest since Oct 2023.
- BTPs led relative strength in periphery EGBs, with 10Y/Bund touching the tightest levels since Dec 16.
- Monday's schedule features Spanish and Portuguese flash December CPI, to kick off the extended Eurozone inflation reporting round (the EZ print is on Jan 7).
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 4.3bps at 2.1%, 5-Yr is up 6.4bps at 2.19%, 10-Yr is up 7.3bps at 2.396%, and 30-Yr is up 7.4bps at 2.627%.
- UK: The 2-Yr yield is up 5.5bps at 4.465%, 5-Yr is up 5.8bps at 4.407%, 10-Yr is up 5.8bps at 4.633%, and 30-Yr is up 4.1bps at 5.182%.
- Italian BTP spread down 2.2bps at 114.7bps / French OAT down 0.3bps at 81.2bps
MNI FOREX: Currency Markets Brush Off Weaker Equity Sentiment
- Despite some sharp weakness for major equity indices on Friday, currency markets remained largely unfazed. A tight 33 pip range for the USD index is evidence of this, with the DXY little changed on the session.
- Weaker risk sentiment has moderately weighed on the Australian dollar, keeping AUD/USD firmly on course for a test of 0.6199, the cycle low. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. Scope is seen for an extension towards 0.6158 next, a Fibonacci projection.
- In contrast, GBP is among the best performers in G10 and showed strength into the WMR fix, potentially buoyed by value date month/year-end flows. The trend structure in GBPUSD remains bearish and today’s bounce appears technically corrective. Initial resistance is at 1.2621, the 20-day EMA.
- In emerging markets, USDMXN had a brief spell of strength on the pessimistic price action in equity markets, rising to 20.40 before sharply reversing course back to 20.20 as any FX market momentum quickly waned.
- Separately, month-end USD demand by importers and ongoing concerns over India’s widening trade deficit pressured the rupee to a fresh record low, with USD/INR’s rise of as much as ~0.5% earlier on in the session its steepest since February 2023. Rallying spot was accompanied by a sharp rise in implied vols, with 1-month vols nearing 4% and currently at its highest levels since August 2023. According to Reuters, the rupee was hurt today by “persistently strong dollar demand” in the NDF market while likely intervention by the RBI capped the currency's losses.
MONDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 30/12/2024 | 0800/0900 | *** |  ES | HICP (p) |
| 30/12/2024 | 0800/0900 | ** |  CH | KOF Economic Barometer |
| 30/12/2024 | 1445/0945 | *** |  US | MNI Chicago PMI |
| 30/12/2024 | 1500/1000 | ** | US | NAR Pending Home Sales |
| 30/12/2024 | 1530/1030 | ** | US | Dallas Fed manufacturing survey |
| 30/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 30/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 30/12/2024 | 1800/1300 | * | US | US Treasury Auction Result for Cash Management Bill |
| 31/12/2024 | 0130/0930 | *** |  CN | CFLP Manufacturing PMI |
| 31/12/2024 | 0130/0930 | ** | CN | CFLP Non-Manufacturing PMI |