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Curve Twist Steepens, Futures Narrow

MNI US Morning FI Analysis: Election Day

Fig 1. MOVE Index


Source: Bloomberg

US TSYS SUMMARY: Calm Before The Storm?

Treasuries have weakened in orderly fashion in European trading, with middling volumes (TYZ0 ~240k) to begin election day. Curve bear steepening as equities rally.

  • The 2-Yr yield is up 0.4bps at 0.1585%, 5-Yr is up 1.1bps at 0.3861%, 10-Yr is up 2.5bps at 0.8688%, and 30-Yr is up 3bps at 1.6467%. Dec 10-Yr futures (TY) down 4.5/32 at 138-5 (L: 138-02.5 / H: 138-11).
  • Dollar weaker (DXY -0.6%), equities up (S&P eminis +1.2%) in a risk-on move globally.
  • Unclear whether that price action is consistent with a 'blue wave' scenario in the election; UK bookmarkers' odds actually showed Biden dipping to lowest probability in weeks (~60% vs ~40% for Trump) this morning, though perhaps that's profit taking as it's back to about 62%-38%.
  • We put out our Fed/Election preview yesterday, as well as an election viewers' guide with timings for poll closings and what to watch on the night - let us know if you want a copy.
  • Don't forget, data today too: 1000ET sees Sept Factory orders/final durable goods.
  • In supply, $94B split across two auctions and three bills ($60B of 42-/119-day at 1130ET, $34B of 52-Wk at 1300ET).
  • NY Fed buys ~$6.025B of 4.5-7Y Tsys before taking a couple of days off for the FOMC 2-day meeting.

BOND SUMMARY: US Election Takes Centre Stage

The US presidential election takes centre stage with markets pivoting to a risk-on position which likely reflects expectation of a Biden victory.

  • Gilts have traded lower with the curve bear steepening. The 2s30s spread is 1bp wider. The Dec-20 gilt future trades at 135.80, towards the bottom end of the day's range (L: 135.65 / H: 136.09).
  • Bunds trade in line with gilts. Yields at the longer end are 3bp higher on the day.
  • The OAT curve has similarly bear steepened. Last yields: 2-year -0.7250%, 5-year -0.695%, 10-year -0.3290%, 30-year 0.3675%.
  • BTPs trade close to unch on the day.
  • Supply this morning came from UK (Gilts, GBP4.75bn), Germany (iBund, EUR0.38bn), Austria (RAGB, EUR0.69bn), Belgium (TCs, EUR1.21bn), ESM (Bills, EUR2bn).
  • There were no significant data releases this morning.

DEBT SUPPLY

GILT AUCTION RESULTS: DMO sells GBP2.00bln nominal of 1.25% Oct-41 gilt

  • Avg yld 0.771% (0.750%), bid-to-cover 2.42x (2.12x), tail 0.1bp (0.3bp), price 109.256 (109.731).
  • Pre-auction mid-price: 109.162
  • An additional GBP500mln will be available through the PAOF to successful bidders until 14:30GMT.

GILT AUCTION RESULTS: DMO sells GBP2.75bln nominal of 0.125% Jan-28 Gilt

  • Avg yld 0.116% (0.086%), bid-to-cover 2.67x (3.22x), tail 0.2bps (0.1ps), price 100.063 (100.284).
  • Pre-auction mid-price 100.039
  • An additional GBP687.5mln will be available through the PAOF to successful bidders until 13:00GMT.

GERMAN AUCTION RESULTS: Germany allots E0.38bn of the 0.50% Apr-30 iBund

  • Average yield -1.35% (-1.25%), Buba cover 1.7x (1.51x), bid-to-cover 1.29x (0.86x)

AUSTRIA AUCTION RESULTS: Austria Sells E0.69bn of the 0% Oct-40 RAGB

Average yield -0.059% (-0.09%), bid-to-cover 1.95x

BELGIUM AUCTION RESULTS: Belgium Sells E1.21bn of TCs Vs E1.0-1.4bn Target

  • E0.647bn of the Mar 11, 2021 TC: Average yield -0.676%, bid-to-cover 2.6x
  • E0.560bn of the May 13, 2021 TC: Average yield -0.672%, bid-to-cover 2.6x

ESM AUCTION RESULTS: The ESM Sells E2bn of 3-Month Bills

  • Average yield -0.643%, bid-to-cover 5.2x

OPTIONS

EGB Options: Bund downside

RXZ0 174.50/173.50ps 1x1.5, bought for 18.5 in 1.5k (ref 176.11)

SHORT STERLING OPTIONS: Profit taking

0LX0 99.875/100.00/100.125c fly sold at 7 in 3k.

EGB Options: BTP/Bund tightener

IK 2,742 at 149.56

RX 2,031 at 176.08

TECHS

US 5YR FUTURE TECHS: (Z0) Approaching The Bear Trigger

  • RES 4: 125-31 High Oct 15 and a key near-term resistance
  • RES 3: 125-29 61.8% retracement of the Sep 30 - Oct 23 sell-off
  • RES 2: 125-272 High Oct 28 and the bull trigger
  • RES 1: 125-242 Trendline resistance drawn off the Sep 30 high
  • PRICE: 125-17 @ 11:18 GMT Nov 3
  • SUP 1: 125-16+ Low Oct 22 and 23 and the bear trigger
  • SUP 2: 125-156 1.00 proj of Aug 4 - 28 sell-off from Sep 3 high
  • SUP 3: 125-112 Low Jun 10 (cont)
  • SUP 4: 125-10+ 1.236 proj of Aug 4 - 28 sell-off from Sep 3 high

5yr futures weakened following the recent failure at trendline resistance drawn off the Sep 30 high and remain soft. The trendline intersects at 125-242. While the trendline holds, support at 125-16+, Oct 22 and 23 low remains exposed. Clearance of this level would confirm a resumption of bearish activity and open 125-156 initially, a Fibonacci projection. On the upside, clearance of the trendline is required to reverse the trend.

US 10YR FUTURE TECHS: ‌(Z0)‌ Resumes Downtrend

  • RES 4: 139-07+ High Oct 16
  • RES 3: 139-03 High Oct 28 and the bull trigger
  • RES 2: 138-22 20-day EMA
  • RES 1: 138-19+ High Oct 30
  • PRICE: 138-04 @ 11:29 GMT Nov 3
  • SUP 1: 138-02+ Intraday low
  • SUP 2: 137-30+ Bear channel base drawn off the Aug 4 high
  • SUP 3: 137-23 1.236 proj of Aug 4 - 28 decline from Sep 3 high
  • SUP 4: 137-15 1.382 proj of Aug 4 - 28 decline from Sep 3 high

Treasuries maintain a bearish stance following last week's sell-off that followed a failure on Oct 28 at trendline resistance drawn off the Oct 2 high. The trendline intersects at 138-30. Futures have continued lower today and also breached former support at 138-03+, Oct 30 low. This confirms a resumption of the downtrend and opens 137-30+, the base of a bear channel drawn off the Aug 4 high. Initial resistance is seen at 138-19+, Oct 30 high.

US 30YR FUTURE TECHS: (Z0) Eyeing Key Support

  • RES 4: 177-00 High Oct 2
  • RES 3: 176-10 High Oct 15 and a key resistance
  • RES 2: 175-00 50-day EMA
  • RES 1: 174-18/29 Trendline drawn off the Aug 6 high / High Oct 28
  • PRICE: 172-05 @ 11:38 GMT Nov 3
  • SUP 1: 171-29 Intraday low
  • SUP 2: 171-22 Low Oct 23 and the bear trigger
  • SUP 3: 171-00 Round number support
  • SUP 4: 170-16 1.00 proj of Aug 6 - 28 sell-off from Sep 3 high

30yr futures are softer following last week's second half sell-off. The recent pullback follows an inability to clear trendline resistance drawn off the Aug 6 high. The trendline intersects at 174-18. A break, reinforced by a move above 174-29, Oct 28 high would confirm a reversal of the recent downleg and open 176-10, Oct 15 high. While price remains below the trendline, support at 171-22, Oct 23 stays exposed. A break would resume the downtrend.

MNI London Bureau | +44 0203-865-3808 | bruce.jeffery@marketnews.com
MNI London Bureau | +44 0203-865-3808 | bruce.jeffery@marketnews.com