MNI US Morning FI Analysis: Focus Shifts To US CPI

US TSYS SUMMARY: Attention turns to US CPI

US Treasuries have traded in a tight 3 ticks range during our European session and within the overnight Asia price action.

• Contract have remained somewhat underpinned following J&J pausing vaccine study.
• Upside in TYZ0 has been limited, on option related delta hedged futures seller, on a large diagonal Risk reversal.
• US Equity earning season for Q3 is kicking off today, with Citi still to report next.
• US curve is leaning bull flatter, but the tight range in the long end has keep curve moves to a minimum.
• Looking ahead, US CPI is the highlight, while Fed's Barkin takes Part in a Virtual Discussion later today.
• 2y yields down -0.8bp today at 0.148%
• 5y yields down -1.6bp today at 0.322%
• 10y yields down -2.1bp today at 0.755%
• 30y yields down -2.7bp today at 1.547%-
• 2s10s down -1.3bp today at 60.7bp
• 10s30s down -0.5bp today at 79.3bp

BOND SUMMARY: EGB/GILT

It has been a relatively quiet session so far with price action contained in EGBs.

• The gilt curve has marginally bull flattened with cash yields 1-2bp lower. The Dec-20 gilt future trades at 135.59, 9 ticks off the day's low.
• Bunds are little change on the day. Last yields: 2-year -0.7351%, 5-year -0.7440%, 10-year -0.5455%, 30-year -0.1153%.
• OATs are similarly unch on the day and the curve trades flat.
• The BTP curve has flattened slightly on the back of the short end trading weaker and the longer end rallying. The 2s30s spread is 3bp narrower.
• Supply this morning came from the UK (Gilts, GBP4.25bn), Italy (BTPs, EUR7.5bn), Spain (Letras, EUR0.935bn), Netherlands (DSL, EUR2bn), Belgium (TCs, EUR1.845bn), Finland (bills, EUR1.981bn) and the ESM (bills, EUR1.5bn).
• UK labour market data showed larger than expected job losses in August (-153k vs -30k on a 3m/3m basis) with the unemployment rate inching up to 4.5% from 4.1% the previous month.
• The latest German ZEW print for October disappointed with the expectations component reading 56.1 vs 72.0 survey.

DEBT SUPPLY

GILT AUCTION RESULTS: DMO sells GBP1.25bln nominal of the 1.75% Jan-57 gilt

• Avg yld 0.796% (0.674%), bid-to-cover 2.41x (2.16x), tail 0.2bp (0.6bp) price 130.349 (135.138).
• Pre-auction mid-price 130.211
• An additional GBP312.5mln will be available through the PAOF to successful bidders until 14:30BST.

GILT AUCTION RESULTS: DMO sells GBP3.00bln nominal of the 0.125% Jan-26 gilt

• Avg yld 0.013% (-0.009%), bid-to-cover 2.45x (2.60x), tail 0.2bp (0.1bp) price 100.595 (100.718).
• An additional GBP750mln will be available through the PAOF to successful bidders until 13:00BST.

ITALY AUCTION RESULTS: Italy Sells E7.5bn of BTPs VS E6.0-7.5bn Target

• E3.75bn of 0.0% Jan-24 BTP: Average yield -0.14%, bid-to-cover 1.40x
• E2.25bn of 0.95% Sep-27 BTP: Average yield 0.34% (0.75%), bid-to-cover 1.76x (1.47x)
• E1.0bn of 2.45% Sep-50 BTP: Average yield 1.48% (1.91%), bid-to-cover 1.42x (1.39x)

DUTCH AUCTION RESULTS: The Netherlands Sells E2.0bn of the 0% Jan-27 DSL

• Average yield -0.624%

SPAIN AUCTION RESULTS: Spain sells E935mln of letras vs E500-1500mln target

• E435mln of the 3-month Jan 15, 2021: Ave yld -0.676%, bid-to-cover 5.98x
• E500mln of the 9-month Sep 7, 2021: Ave yld -0.589Y%, bid-to-cover 8.15x

BELGIUM AUCTION RESULTS: Belgium Sells E1.845bn of Bills Vs E1.6-2.0bn Target

• E0.605bn of Jan 14, 2021 TCs: Average yield -0.693%, bid-to-cover 3.6x
• E1.24bn of Sep 9, 2021 TCs: Average yield -0.647%, bid-to-cover 2.2x

FINLAND AUCTION RESULTS: Finland Sells E1.981bn of Treasury Bills

• E0.980bn of May 11, 2021 bills: Average yield -0.640%, bid-to-cover 1.83x
• E1.001bn of Aug 10, 2021 bills: Average yield -0.630%, bid-to-cover 1.63x

ESM AUCTION RESULTS: The ESM Sells E1.5bn of 12-Month Bills

• Average yield -0.61%, bid-to-cover 5.43x

OPTIONS

EGB OPTIONS: Bund upside buyer

RXX0 176c, bought for 5 in 5k

SHORT STERLING OPTIONS: interest in Blue structure

3LG1 99.62/99.37ps, bought for 2.75 in 15 (ref 99.85, 16 del)

EGB OPTIONS: Bobl/Schatz Bear Steepener

Bobl/Schatz conditional Bear steepener via option:

• OEZ0 135.25/135.00ps, bought for 8 in 5k
• OEZ0 135.50c, sold at 20 in 2k
• DUZ0 112.30/40 RR, sold the put at half in 5k

TECHS

US 5YR FUTURE TECHS: (Z0) Bear Flag

• RES 4: 126-06+ High Sep 3 and the bull trigger
• RES 3: 126-046 High Sep 30
• RES 2: 125-292 50-day EMA
• RES 1: 125-272 High Oct 6
• PRICE: 125-24 @ 11:19 BST Oct 13
• SUP 1: 125-202 Low Oct 7 and the bear trigger
• SUP 2: 125-16+ 1.00 proj of Aug 4 - 13 sell-off from Sep 3 high
• SUP 3: 125-112 1.236 proj of Aug 4 - 13 sell-off from Sep 3 high
• SUP 4: 125-08 1.382 proj of Aug 4 - 13 sell-off from Sep 3 high

5yr futures traded sharply lower recently but have found room to consolidate. The recent pause has taken on the appearance of a bear flag formation. This is a continuation pattern and suggests that further bearish pressure is likely to dominate near-term. On Oct 7, futures probed key support at 125-216, Aug 28 low. This also reinforces bearish conditions and a clear break would open 125-16+, a Fibonacci projection. Resistance is at 125-272, Oct 6 high.

US 10YR FUTURE TECHS: ‌(Z0)‌ Eyeing Key Support ‌ ‌

• RES 4: 139-29 High Sep 3 and the bull trigger
• RES 3: 139-26 High Sep 17
• RES 2: 139-09 50-day EMA
• RES 1: 139-06 High Oct 6
• PRICE: 138-30 @ 11:30 BST Oct 13
• SUP 1: 138-20+ Low Oct 7
• SUP 2: 138-18+ Low Aug 28 and the bear trigger
• SUP 3: 138-04+ 1.000 proj of Aug 4 - 28 sell-off from Sep 3 high
• SUP 4: 138-00 Round number support

Treasuries maintain a bearish stance. Futures have traded lower since Sep 29 but more recently, a consolidative tone has set in. This pause has taken on the appearance of a bear flag. This is a continuation pattern and suggests that bearish pressure is likely to dominate near-term. Attention is on the next major support at 138-18+, Aug 28 low and the bear trigger. A break would open 138-04+, a Fibonacci projection. 139-06, Oct 6 high is resistance.

US 30YR FUTURE TECHS: (Z0) Bearish Focus

• RES 4: 177-14 High Sep 17
• RES 3: 177-00 High Oct 2
• RES 2: 176-11 50-day EMA
• RES 1: 175-03 High Oct 6
• PRICE: 174-17 @ 11:53 BST Oct 13
• SUP 1: 173-10 Low Oct 7 and the bear trigger
• SUP 2: 172-13 0.764 projection of Aug 6 - 28 decline from Sep 3 high
• SUP 3: 172-00 Round number support
• SUP 4: 170-16 1.00 projection of Aug 6 - 28 decline from Sep 3 high

30yr futures remain bearish. Price has recently traded sharply lower clearing a key support at 175-00, Sep 10 low. Last week futures probed major support at 173-16, Aug 28 low and the bear trigger. A clear break would confirm a resumption of the downleg that started on Aug 6 and open 172-13, a Fibonacci retracement. 175-03 is initial resistance with 177-00, Oct 2 high also providing a hurdle for bulls.