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Fig 1. 2s30s EUR Swap
Looming European lockdowns (France and Germany weighing new measures to combat a COVID spike) cast a pall on risk sentiment in overnight trade, with equities sinking and extending the Treasury rally/bull flattening to a fourth day.
- Dec 10-Yr futures (TY) up 6.5/32 at 139-01.5 (L: 138-27 / H: 139-02) on solid volume (300+k). The 2-Yr yield is down 0.3bps at 0.1427%, 5-Yr is down 1.6bps at 0.3141%, 10-Yr is down 1.7bps at 0.7509%, and 30-Yr is down 1.6bps at 1.5369%.
- Also weighing on sentiment in Asia trade was the announcement of a DOJ/FBI briefing on a "China related national security matter" today at 1100ET.
- On the campaign trail, Trump is in Nevada and Arizona, while Biden delivers a speech on COVID from Delaware.
- A double auction offering today at 1300ET: $26B of 2-Yr FRN and $55B of 5-Yr Notes. In the undercard, $55B in 105-/154-day bills at 1130ET.
- In data, Sep Advance Trade Balance and Wholesale Inventories at 0830ET.
- NY Fed's next forward schedule of operational purchases to be released around 1500ET.
Core European sovereign curves have bull flattened while the EGB periphery has sold off.
- Gilts have rallied with cash yields 1-4bp lower with the 2s30s spread 3bp narrower.
- Bunds have marginally outperformed on the day. The 30-year benchmark yield has traded down 5bp.
- OATs have lagged the rally with yields up to 2bp lower.
- BTPs have traded slightly weaker. Last yields: 2-year -0.3548%, 5-year 0.1177%, 10-year 0.7380%, 30-year 1.6038%.
- Supply came from UK (Gilts, GBP2.5bn), Germany (Bund, EUR1.649bn), Italy (BOTs, EUR6.5bn).
- This morning's data releases were second tier. Spanish retail sales for September printed broadly in line with survey (-3.3% Y/Y SA vs -3.4%).
- Focus is on tomorrow's ECB meeting. Although the monetary policy stance is expected to remain unchanged, most see this as an opportunity for the ECB to signal further easing at the December meeting. MNI has published its ECB Preview online and by email.
- Avg yld 0.244% (0.313%), bid-to-cover 3.00x (2.84x), tail 0.1bps (0.1bps), price 101.287 (100.608).
- Pre-auction mid-price 101.251
- An additional GBP625mln will be available through the PAOF to successful bidders until 13:00GMT.
- Average yield -0.46% (-0.31%), Buba cover 1.4x (1.17x), bid-to-cover 1.18x (1.38x)
- Average yield -0.478%, bid-to-cover 1.66x
ERM1 100.50 put x 1.5 v 100.625 call (v 100.54, 78d), sells put at 2.25 in 18.75k x 12.5k
2LU1 99.875/100.125 ^^ sold at 21.5 in 1k
Earlier in the session:
- DUZ0 112.40/112.30/112.20 put fly bought for 2.5 in 2k
- OEZ0 135.50/135.75 1x2 call spread bought for -10 in 1k
- 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: 125-27 50-day EMA
- RES 1: 125-266 Intraday high
- PRICE: 125-26+ @ 10:36 GMT Oct 28
- SUP 1: 125-206 Low Oct 27
- SUP 2: 125-16+ Low Oct 22 and 23 and the bear trigger
- SUP 3: 125-156 1.00 proj of Aug 4 - 28 sell-off from Sep 3 high
- SUP 4: 125-112 Low Jun 10 (cont)
5yr futures have recovered off recent lows and have extended gains today. The contract is currently testing trendline resistance drawn off the Sep 30 high that today intersects at 125-262. A clear break of the trendline would highlight a reversal of the recent sell-off between sep 30 - Oct 23 and signal potential for further gains. This would open 125-31, Oct 15 high. On the downside, initial firm support is seen at 125-206, Oct 27 low.
- RES 4: 139-17 Bear channel resistance drawn off the Aug 4 high
- RES 3: 139-14 High Oct 15 and a key resistance
- RES 2: 139-07+ High Oct 16
- RES 1: 139-03+ 50-day EMA
- PRICE: 139-01+ @ 10:50 GMT Oct 28
- SUP 1: 138-18+ Low Oct 27
- SUP 2: 138-05 Low Oct 23
- SUP 3: 138-04+ 1.00 proj of Aug 4 - 28 decline from Sep 3 high
- SUP 4: 138-00+ Bear channel base drawn off the Aug 4 high
Treasuries bounced further Tuesday and have done so again today as this week's rally extends. The underlying momentum behind the current rally suggests scope for further upside and attention turns to the top of a bear channel resistance at 139-17. The channel is drawn off the Aug 4 high. Immediate resistance is at the 50-day EMA at 139-03+ and 139-14, the Oct 15 high. On the downside, initial firm support lies at 138-18+, Oct 27 low.
- RES 4: 177-00 High Oct 2
- RES 3: 176-10 High Oct 15 and a key resistance
- RES 2: 175-16 50-day EMA
- RES 1: 175-01 Trendline resistance drawn off the Aug 6 high
- PRICE: 173-18 @ 10:47 GMT Oct 27
- SUP 1: 173-12 Low Oct 27
- 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 continue to rally and gains have extended once again today. Futures are approaching a key trendline resistance at 175-01. The trendline is drawn off the Aug 6 high. While the line holds, the downtrend that started on Aug 6 remains intact. A trendline break though would strengthen a short-term bullish case and importantly also signal a trend reversal. This would open 176-10, Oct 15 high. Support is at 173-12, Oct 27 low.