MNI US MARKETS ANALYSIS - Market Sees ECB a Coin Toss Between 25-, 50-bps

US TSYS: Bear Flattening Ahead Of ECB Decision Adding To The Mix

• Cash Tsys have seen a bear flattening as front yields climb in a trend continuation of yesterday’s paring of gains, helped by Swiss authorities first holding talks to stabilize Credit Suisse which have led to CS tapping the SNB for as much as CHF 50B. Further banking stress clearly in focus but today’s ECB decision is also closely watched although the US clocks change sees it land at 0915ET after a barrage of second tier 0830ET data.
• 2YY +12.4bps at 4.011%, 5YY +3.6bps at 3.585%, 10YY +2.2bps at 3.477% and 30YY +0.5bps at 3.648%.
• TYM3 trades just half a tick lower at 115-03+ on still high cumulative volumes of 530k but lower than the past few sessions for time of day. It remains within yesterday’s range, high 115-31 and low 113-08+ which now form initial technical levels.
• Data: Weekly initial jobless claims are watched after last week’s rise was the largest (and only second) upside surprise this year, building permits for Feb, Philly Fed mfg index for Mar after yesterday’s drop in the volatile Empire survey and further input price pressure indications from import prices for Feb.
• Bill issuance: US Tsy $60B 4W, $50B 8W bill auctions (1130ET).

Overnight SOFR Option Roundup

• Block, 5,000 OQJ3 96.00/2QJ3 96.87 call spd, 40.0 net conditional curve
• Block, 3,750 OQM3 97.00/97.62 call spds, 15.5 vs. 96.465/0.15%
• 7,500 SFRK3 94.75/94.62 put spds vs. 95.75/95.87 call spds
• 7,500 SFRM3 94.75/94.62 put spds vs. 95.75/95.87 call spds
• 10,000 SFRZ3 94.50/95.50 put spds, ref 96.05 to -.045
• 2.000 SFRK3 94.75/95.00/95.25 put flys, ref 95.58
• over 13,700 OQM3 95.75 puts ref 96.53 to -.445
• Block, 2,500 SFRJ3 95.43 calls, 54.0 vs. 95.55/0.55%
• Block, 17,500 SFRK3 94.00 puts, 2.5-3.5
• Block/screen, 4,000 SFRM3 94.75/95.25/95.75 call flys, 8.5

EUROPE ISSUANCE UPDATE:

Spain auction results

• It was a positive Spanish auction with the stop price exceeding the pre-auction mid-price for the three Oblis on offer. The auction saw of E6.298bln was in the upper part of the E5.5-6.5bln range and there was more sold today than in the mid-February auction. All three Oblis traded higher than the stop prices in post-auction trading.
• E2.479bln of the 0% Jan-28 Obli. Avg yield 2.983% (bid-to-cover 1.62x).
• E2.166bln of the 3.15% Apr-33 Obli. Avg yield 3.361% (bid-to-cover 1.59x).
• E1.653bln of the 1.90% Oct-52 Obli. Avg yield 3.81% (bid-to-cover 1.58x).

• A decent MT OAT auction from France. Like the Spanish auction a few minutes earlier we saw the stop price above the pre-auction mid-price for all three OATs on offer. We have also seen higher bid-to-covers for the 2.50% Sep-26 OAT and the 0.75% Feb-28 OATs (the on-the-run 3/5-year OATs) than in last month's auction.
• The lower bid-to-cover for the 0% Nov-30 OAT versus the 2.50% May-30 OAT last month is due to the much higher allotment of E4.366bln versus E2.545bln. Indeed, bids for the 0% Nov-30 OAT today were E8.1bln versus E5.9bln last month. In post-auction trading all three OATs moved above the stop price, but shortly after they moved lower in line with other FI markets.
• E3.459bln of the 2.50% Sep-26 OAT. Avg yield 2.7% (bid-to-cover 2.53x).
• E4.173bln of the 0.75% Feb-28 OAT. Avg yield 2.66% (bid-to-cover 2.34x).
• E4.366bln of the 0% Nov-30 OAT. Avg yield 2.67% (bid-to-cover 1.86x).

• E756mln of the 0.10% Mar-29 OATei. Avg yield 0.14% (bid-to-cover 1.89x).
• E450mln of the 0.10% Jul-53 OATei. Avg yield 0.32% (bid-to-cover 2.47x).
• E270mln of the 0.10% Mar-36 OATi. Avg yield 0.45% (bid-to-cover 2.37x).

FOREX: EUR On More Stable Footing Pre-ECB

• EUR vols remain well elevated ahead of the ECB decision later today, with markets split down the middle on whether the ECB stick to guidance of a 50bps hike, or a slower 25bps step today.
• An overnight EURUSD straddle breaks even on a swing of ~90pips - making for the largest premium since the mid-December Fed and ECB meetings. Yesterday's currency volumes were pretty fearsome: M3 EUR futures saw over 350k contracts trade for the first time this year making for cumulative daily activity of over 50% above average.
• The greenback is softer against most others, with the shoring of concerns surrounding Credit Suisse helping prop up sentiment across the board. This week's volatility continues to make its presence felt, however, evident in very shallow bounce for EUR/USD and GBP/USD off the Wednesday lows.
• NZD is the poorest performer in G10, with pressure following Q4 GDP printed, which came in below expectations at -0.6% Q/Q and much weaker than the RBNZ forecast of +0.7%.
• Outside of the ECB decision, weekly US jobless clams, import/export price indices and the housing starts/building permits releases for February.

FX OPTIONS: Expiries for Mar16 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0610-20(E1.5bln), $1.0628-40(E1.2bln), $1.0700-15(E1.7bln)
• GBP/USD: $1.2150-55(Gbp588mln)
• EUR/GBP: Gbp0.8800(E829mln)
• AUD/USD: $0.6600-25(A$1.0bln)
• USD/CAD: C$1.3815($716mln)

BONDS: Core FI Remains Notably Lower But Volatility Continues

• Core fixed income remains notably lower this morning, led by EGBs and a general bear flattening of curves. However, markets remain volatile. Schatz yields for example at the time of writing are 16bp higher on the day, but 14bp off the high of 2.704% seen shortly after the cash open (and still over 5bp above the intraday lows).
• Bund futures fell around 120 ticks in overnight trading before falling a further 60 ticks in early European trading to a low of 135.78. We have since traded 100 ticks higher than that at 136.81 around 15 minutes ago and now are back close to the levels seen before Europeans got to their desks.
• Similar, but smaller, moves have been seen in Treasuries while gilts have seen the curve move in a more parallel fashion again today (underperforming Treasuries, but outperforming Bunds).

EQUITIES: Wednesday Price Action Confirms Resumption of Eurostoxx Future Downtrend

• The Eurostoxx 50 futures move lower Wednesday marks a resumption of the current downtrend. The contract traded through Monday’s low and this reinforces last week’s breach of a key support at the base of a bull channel drawn from the Oct 13 low. The trendline break highlights a reversal of the uptrend that started late September 2022. The focus is on the 4000.00 handle next. Initial firm resistance is at 4212.50, the 20-day EMA.
• The short-term condition in S&P E-Minis remains bearish and short-term gains are considered corrective. Price last week cleared key short-term support at 3960.75, Mar 2 low to confirm a resumption of the bear cycle that has been in place since Feb 2. The move lower signals scope for an extension towards 3822.00 next, the Dec 22 low. Initial firm resistance is seen at 4031.46, the 50-day EMA.

COMMODITIES: WTI Breaches Key $70.86 Dec 9 Low and $70.00 Support Levels

• WTI futures remain vulnerable and yesterday’s move lower resulted in the break of key support at $70.86, the Dec 9 low. The move down confirms a resumption of the medium-term downtrend and reinforces current bearish conditions. Note too that price has cleared the psychological $70.00 handle. Attention is on $65.60, the Dec 3 2021 low. Initial resistance is at $72.56, yesterday’s high.
• Gold remains bullish and the metal traded higher yesterday. Resistance at $1858.3, the Mar 6 high, has recently been cleared and the latest rally signals scope for an extension towards $1959.7, the Feb 2 high and a key near-term resistance. On the downside, initial firm support is seen at $1851.9, the 50-day EMA. A break of this level is required to signal a top - this would expose the bear trigger at $1804.9, the Feb 28 low.