MNI US Morning FI Analysis:

US TSYS SUMMARY: Curve Flattens As Equities Dip

Treasuries have strengthened in European trading - curve flattening has accelerated in the past hour as equities have weakened (no real driver seen for stock drop), 5s30s nearly 2bps lower.

• The 2-Yr yield is down 0.2bps at 0.137%, 5-Yr is down 0.6bps at 0.2976%, 10-Yr is down 1.5bps at 0.7123%, and 30-Yr is down 2.5bps at 1.4862%.
• Dec 10-Yr futures (TY) up 2/32 at 139-8.5 (L: 139-04.5 / H: 139-09.5)
• Comes against the backdrop of negative tone on well-known themes: US fiscal impasse, vaccine COVID vaccine setbacks.
• Among earnings reports today, UnitedHealth beat expectations; BofA, United Airlines and Goldman Sachs up later.
• Very busy slate of Fed speakers. Richmond's Barkin at 0835ET, VC Clarida at 0900ET, VC Quarles at 1030ET, Barkin again at 1400ET, NYFed's Logan at 1420ET, Quarles/Dallas' Kaplan at 1500ET, and Kaplan again at 1800ET.
• Today's data is Sep PPI, at 0830ET. In supply, $55B in 105-/154-day bills. NY Fed buys ~$1.225B of 7.5-30Y TIPS.

EGB/GILT SUMMARY: Bull Flattening

European govies have rallied this morning with core curves bull flattening.

• Gilts yields are 2-4bp lower on the day, while the 2s30s spread is 2bp narrower. The Dec-20 gilt future has traded up toward the top of the day's range (L:136.00 / H: 136.26) and last printed 136.23.
• Bunds are trading broadly in line with gilts. The curve is similarly 2bp flatter.
• OAT yields have traded down 1-3bp. Last yields: 2-year -0.7039%, 5-year -0.6674%, 10-year -0.3168%, 30-year 0.3599%
• BTPs have firmed, but have slightly underperformed core EGBs.
• EGB Supply this morning came from Germany (Bunds, EUR0.8974bn) and Portugal (OTs, EUR1.00bn). The UK's DMO sold GBP2.50bn of the 0.875% Oct-29 Gilt.
• Today's data slate has been relatively uneventful. The final Spanish CPI print for September was unchanged, while Eurozone industrial production for August was marginally below expectations (0.7% M/M vs 0.8% survey).

DEBT SUPPLY

GILT AUCTION RESULTS: DMO sells GBP2.50bln nominal of 0.875% Oct-29 gilt

• Avg yld 0.166% (0.153%), bid-to-cover 3.29x (2.38x), tail 0.2bps (0.3bps), price 106.346 (106.576).
• Pre-auction mid-price 106.314
• An additional GBP625mln will be available through the PAOF to successful bidders until 13:00BST.

GERMAN AUCTION RESULTS: Germany Allots E0.8974bn of the 0% Aug-50 Bund

• Average yield -0.16% (-0.05%), Buba cover 2.4x (2.91x), bid-to-cover 2.1x (2.42x), price 104.95

PORTUGAL AUCTION RESULTS: Portugal Sells E1.0bn of OTs Vs E0.75-1.00bn Target

• E0.654bn of the 2.125% Oct-28 OT : Average yield -0.085%, bid-to-cover 2.36x
• E0.346bn of the 4.10% Apr-37 OT: Average yield % (1.90%), bid-to-cover 2.29x (1.83x)

OPTIONS

EGB OPTIONS: Schatz CS vs PS

DUZ0 112.02/00ps vs 112.40/60cs, sold the cs at -2 in 5k.

• Was also sold in 13k last week

EGB OPTIONS: Bund Dec CS

RXZ0 177/177.5cs, bought for 7.5 in 3k

EGB OPTIONS: Upside structure

RXX0 176/177cs, bought for 6.5 in 2.5k

SHORT STERLING OPTIONS: More mid buyer

0LZ0 100.00/100.12cs, bought for 5 in another 7,151 (ref 100.04, 36 del). They bought 6k earlier

SHORT STERLING OPTIONS: Longer dated 1x2 CS

LU1 100.25/100.50cs 1x2, bought for 1.75 in 3k

TECHS

(Z0) Finds Support

• RES 4: 126-006 76.4% retracement of the Sep 30 - Oct 7 sell-off
• RES 3: 125-316 High Oct 5
• RES 2: 125-30+ 61.8% retracement of the Sep 30 - Oct 7 sell-off
• RES 1: 125-29 50-day EMA
• PRICE: 125-28+ @ 11:21 BST Oct 14
• SUP 1: 125-23+ Low Oct 13
• SUP 2: 125-202 Low Oct 7 and the bear trigger
• SUP 3: 125-16+ 1.00 proj of Aug 4 - 13 sell-off from Sep 3 high
• SUP 4: 125-112 1.236 proj of Aug 4 - 13 sell-off from Sep 3 high

(Z0)‌ Bounce Likely To Extend ‌ ‌

• RES 4: 139-25 High Oct 2
• RES 3: 139-17 76.4% retracement of the Sep 29 - Oct 7 sell-off
• RES 2: 139-11+ 61.8% retracement of the Sep 29 - Oct 7 sell-off
• RES 1: 139-09+ Intraday high
• PRICE: 139-09 @ 11:28 BST Oct 14
• SUP 1: 138-28+ Low Oct 13
• SUP 2: 138-20+ Low Oct 7 and the bull trigger
• SUP 3: 138-18+ Low Aug 28 and the bear trigger
• SUP 4: 138-04+ 1.000 proj of Aug 4 - 28 sell-off from Sep 3 high

Treasuries rallied Tuesday signalling a possible reversal of the recent bearish theme. The strong daily close yesterday reinforces this possibility and signals scope for stronger S/T gains. Futures are testing a band of resistance highlighted by the 20- and 50-day EMAs. Clearance of these averages would strengthen a S/T bullish argument and together with this week's gains, open 139-11+, a retracement level. Initial support is at 138-28+, yesterday's low.

(Z0) Enters An EMA Resistance Zone

• RES 4: 177-14 High Sep 17
• RES 3: 177-00 High Oct 2
• RES 2: 176-10 50-day EMA
• RES 1: 175-25 High Oct 5
• PRICE: 175-18 @ 11:41 BST Oct 14
• SUP 1: 174.08 Low Oct 13
• SUP 2: 173-10 Low Oct 7 and the bear trigger
• SUP 3: 172-13 0.764 projection of Aug 6 - 28 decline from Sep 3 high
• SUP 4: 170-16 1.00 projection of Aug 6 - 28 decline from Sep 3 high

30yr futures rallied yesterday signalling a potential reversal of the recent decline between Sep 29 and Oct 7. Futures are holding onto gains and have pushed higher today. Futures have entered a band of resistance between 175-15 and 176-10, the 20- and 50-day EMAs. Clearance of this zone would strengthen the short-term bullish picture and open 177-00, Oct 2 high. Initial support is at 175-08, yesterday's low. The reversal trigger is at 173-10.