MNI US MARKETS ANALYSIS - Short-End Yields Undergo Shallow Bounce

US TSYS: 2Y Yields Pare Little Under Half Of Yesterday's Historical Rally

• Cash Tsys have seen a bear flattening as the front-end pared earlier further brief gains seen likely on Credit Suisse accounting headlines. The 26bp increase for 2YY follows yesterday’s 61bp decline, the largest one day decline since the early 1980s. With moves very much concentrated at the front end, the bear flattening sees 2s10s widen back out to -63bps at typing comparing with last week’s lows of -110bps.
• 2YY +25.9bp at 4.236%, 5YY +19.9bp at 4.069%, 10YY +3.2bp at 3.605%, 30YY -0.6bp at 3.703%.
• TYM3 trades 26+ ticks lower at 113-26+ close to session lows of 113-26 with heavy cumulative volumes of 700k. Having cleared tentative round number support at 114-00, it currently remains in the middle of yesterday’s wide range of 112-21 to 115-13.
• Data: CPI clearly headlines the session at 0830ET (1230GMT, preview here), whilst real average earnings land at the same time as usual.
• Fedspeak: Media blackout (for macro/mon pol elements) but now likely looked at far more closely than would otherwise have been the case, Gov. Bowman speaks at a community bankers’ event in Hawaii (1720ET).
• No issuance.

EUROPE ISSUANCE UPDATE:

Gilt auction results

• Today saw a relatively strong gilt auction with the LAP above the pre-auction mid-price and a relatively tight tail of 0.4bp. The 3.25% Jan-33 gilt traded at a higher level post-results than the average auction price of 97.960.
• GBP3bln of the 3.25% Jan-33 Gilt. Avg yield 3.495% (bid-to-cover 2.42x, tail 0.4bp).

Dutch auction results

• E1.995bln of the 0.75% Jul-27 DSL. Avg yield 2.559%

Italy auction results

• BTP auction largely in line with expectations - bid-to-covers were similar to recent ranges, average auction prices were a little above pre-auction mid-prices.
• E4bln of the 3.80% Apr-26 BTP. Avg yield 3.71% (bid-to-cover 1.38x).
• E3bln of the 3.85% Dec-29 BTP. Avg yield 3.98% (bid-to-cover 1.42x).
• E2bln of the 4.00% Apr-35 BTP Green. Avg yield 4.4% (bid-to-cover 1.41x).
• E750mln of the 2.15% Mar-72 BTP. Avg yield 4.2% (bid-to-cover 1.58x).

German auction results

• A relatively weak Bobl auction with the lowest accepted price below the pre-auction mid-price and a lower bid-to-cover than the previous Bobl auction. The price of the 2.20% Apr-28 Bobl fell further below 98.80 following the results (low price at auction was 98.84 with pre-auction mid-price of 98.858).
• E5bln (E4.206bln allotted) of the 2.20% Apr-28 Bobl. Avg yield 2.43% (bid-to-cover 1.13x).

FOREX: USD Regathers, NOK Extends 2023 Weakness

• JPY is sliding against all others - typifying the price action so far Tuesday, which has been largely corrective in nature as markets moderate after a frantic Monday session. The USD is favoured on the margin, although yesterday's wide ranges have been wholly respected so far. The USD Index appears to have found some support at the 50-dma, undercutting at 103.448.
• NOK is extending 2023's losing streak, weaker against most others and within range of the cycle lows against the EUR and USD as the wave of global rate re-pricing crimps market expectations that the Norges Bank could return to the recent pace of rate hikes.
• GBP saw a brief spell of support on the back of the UK jobs data, which saw the ILO unemployment rate slip below forecast, although weekly earnings data showed the rally in wages may be close to peaking. GBP/USD briefly saw support up to 1.2180 before stalling, and returning to minor negative territory ahead of the NY crossover.
• Focus rests solely on the US CPI release later today, at which markets look for Y/Y CPI to slow to 6.0%, and 5.5% for the core metric.

FX OPTIONS: FX Implied Vols Remain Well Bid Ahead of CPI, ECB Risks

• Overnight FX vols remain well bid headed through the NY crossover, with the contracts seeing significant support ahead of the CPI release later today, with some short-end EUR vols also beginning to capture the fallout from the ECB rate decision and press conference due Thursday.
• EUR/USD O/N vols are now clear of 20 points, rising to the highest level since July last year and that month's Fed rate decision.
• Vols are also well bid across risk proxy-FX and notably AUD, which is seeing vols clear 27 points and hit the highest level since late 2020 and the throes of the COVID pandemic.

FX OPTIONS: Expiries for Mar14 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0650(E931mln), $1.0695-00(E724mln), $1.0740-50(E1.5bln), $1.0780-00(E1.4bln)
• USD/JPY: Y130.00($720mln), Y131.00($562mln)
• EUR/GBP: Gbp0.8830-50(E752mln)
• AUD/USD: $0.6781-00($694mln)

EQUITIES: Eurostoxx Futures More Steady Following Sharp Monday Sell Off

• Eurostoxx 50 futures started the week on a bearish note with price trading lower Monday. This reinforces Friday’s breach of a key support at the base of a bull channel drawn from the Oct 13 low. The break highlights a reversal of the uptrend that has been in place since late September 2022. The 50-day EMA has been breached and this opens the 4000.00 handle next. On the upside, initial firm resistance is seen at 4238.20, the 20-day EMA.
• The short-term condition in S&P E-Minis remains bearish and Monday’s move lower reinforces this theme. Price last week cleared key short-term support at 3960.75, the Mar 2 low to confirm a resumption of the bear cycle that has been in place since the Feb 2 reversal. The move lower signals scope for an extension towards 3822.00 next, the Dec 22 low. Initial firm resistance is seen at 4039.14, the 50-day EMA.

COMMODITIES: WTI Futures Vulnerable After Piercing $72.64 Feb 6 Low

• A sharp sell-off in WTI futures last week has defined a key resistance at $80.94, Feb 7 high. A break of this hurdle is required to reinstate a bullish theme that would open $82.89, the Jan 23 high and a key resistance. The contract remains vulnerable and support at $72.64, Feb 6 low, has been pierced. A clear breach would strengthen a bearish threat and open $70.86, Dec 9 low and a bear trigger. Initial firm resistance is $78.06, the Mar 9 high.
• Gold rallied sharply higher last week and yesterday started the week on a firm note. Resistance at $1858.3, the Mar 6 high has been cleared. This signals scope for an extension towards $1923.2, a Fibonacci retracement point and a key near-term resistance. On the downside, initial firm support is seen at $1847.0, 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.