MNI US MARKETS ANALYSIS - 10y Yield Dips Back Below 1.70%

US TSYS SUMMARY: Bull Flattening Amid Tentative Stability

Treasuries have gained back a bit of ground overnight Friday vs Thursday's sharp losses, albeit all well within the (admittedly broad) ranges of yesterday's session. An extraordinarily thin calendar lies ahead, with no data, supply, or scheduled speakers.

• Bull flattening has been the order of the day: with long end rallying, 5s30s now below pre-FOMC wides.
• The 2-Yr yield is up 0.4bps at 0.1573%, 5-Yr is down 0.8bps at 0.8561%, 10-Yr is down 1.4bps at 1.6944%, and 30-Yr is down 2.1bps at 2.4269%.
• Jun 10-Yr futures (TY) up 6.5/32 at 131-15 (L: 131-10 / H: 131-21.5) on lower volumes than Thurs, but above the norm (~410k).
• S&P futures up very slightly after dipping overnight, but gains look tentative so far. Dollar fluctuating, trading basically flat.
• The only item of note on the agenda is 1030ET: NY Fed buying ~$2.425B of 1Y-7.5Y TIPS.
• As such, there's some attention on any SLR announcement by the Fed (Chair Powell said Weds that it would come in the "coming days"), though most are looking to Monday when it's assumed the Fed Board of Governors will have their usual biweekly meeting.

EGB/GILT SUMMARY: Third Wave Fears

European sovereign bonds have rallied this morning and curves have bull flattened alongside losses for equities.

• Gilt yields are 2-5bp lower with the curve 2bp flatter.
• The long end of the German curve is similarly outperforming with the 2s30s spread 3bp narrower.
• BTPs have trade broadly in line with core EGBs. Cash yields are 1-5bp lower on the day.
• EU member states are expected to resume using the AstraZeneca Covid jab after the EMA ruled in its favour. The move comes amid rising concern about the third wave and slow progress on vaccinations.
• Reports have come out indicating a Scottish parliamentary committee has ruled that SNP leader Nicola Sturgeon misled parliament. While a formal inquiry conducted by an independent lawyer (James Hamilton) is still ongoing, pressure on Sturgeon to resign continues to mount.

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXJ1 170.50/170.00ps, bought for 8.5 in 2.3k. (said to be a short cover)

DUK1 112.20/112.10/11.90p fly, bought for 2.5 in 10k
DUK1 112.20 c, bought for 2.5 in 10k

FOREX: Markets More Steady, Central Banks Digested

• Markets are more steady early Friday, with traders digesting the deluge of central bank decisions this week. NOK is seeing some support as the oil price stabilises following yesterday's sharp drawdown, with underlying support also stemming from the steeper rate path projections outlined by the Norges Bank yesterday.
• CHF and EUR are among the morning's worst performing currencies, with ongoing vaccine ire over the rollout of the AstraZeneca treatment across the EU raising concerns over the continent's recovery plans. EUR/USD is circling overnight lows at 1.1902.
• In recent trade, GBP has seen some modest strength helping buoy GBP/USD toward 1.3960 as wires report that the UK and EU is edging closer to a limited finance trade deal with the European Union.
• Focus turns to the Russian rate decision (expected unchanged at 4.25%) and Canadian retail sales data for January. Speeches are due from ECB's Panetta & Vasle and BoE's Cunliffe.

FX OPTIONS: Expiries for Mar19 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1825-40(E533mln), $1.1865-80(E540mln), $1.1888-1.1900(E1.2bln), $1.1925-35(E855mln-EUR puts), $1.1940-55(E1.6bln-EUR puts), $1.2000(E1.3bln), $1.2025-30(E512mln)
• USD/JPY: Y107.50($800mln), Y108.45-50($887mln), Y109.00($840mln), Y109.42-50($549mln), Y109.95-00($690mln)
• GBP/USD: $1.3900(Gbp450mln-GBP puts)
• EUR/GBP: Gbp0.8600-10(E925mln-EUR puts)
• AUD/USD: $0.7750-60(A$1.2bln)
• NZD/USD: $0.7225-40(N$510mln)
• USD/CAD: C$1.2450($547mln), C$1.2500($500mln), C$1.2550($645mln), C$1.2630-40($690mln)
• USD/CNY: Cny6.35($879mln)

EQUITIES: US Futures Off Lows

• Asian stocks closed mixed, with Japan's NIKKEI down 424.7 pts or -1.41% at 29792.05 and the TOPIX up 3.7 pts or +0.18% at 2012.21. China's SHANGHAI closed down 58.405 pts or -1.69% at 3404.663 and the HANG SENG ended 414.78 pts lower or -1.41% at 28990.94.
• European stocks are lower, with the German Dax down 50.37 pts or -0.34% at 14722.78, FTSE 100 down 39.19 pts or -0.58% at 6741.52, CAC 40 down 37.51 pts or -0.62% at 6025.22 and Euro Stoxx 50 down 17.27 pts or -0.45% at 3850.03.
• U.S. futures are stronger, with the Dow Jones mini up 62 pts or +0.19% at 32942, S&P 500 mini up 13.25 pts or +0.34% at 3929.75, NASDAQ mini up 99 pts or +0.77% at 12894.5.

COMMODITIES: Oil Regains Some Ground

• WTI Crude up $0.98 or +1.63% at $60.97
• Natural Gas up $0.03 or +1.05% at $2.507
• Gold spot up $6.55 or +0.38% at $1743.29
• Copper down $2.9 or -0.71% at $407.95
• Silver up $0.06 or +0.25% at $26.1365
• Platinum down $1.7 or -0.14% at $1208.22