MNI US Morning FI Analysis: Risk Aversion Drives Curve Flattening

US TSYS SUMMARY: Bull Flattening As Familiar Anxieties Re-Emerge

A familiar set of global concerns has boosted Tsys among other safe haven plays: COVID (lockdowns in Europe), Brexit (EU Summit getting underway shortly), and US fiscal (Mnuchin's comments Weds dashing most hopes of pre-election stimulus).

• Tsy futures just below session highs, with Dec TYs up 5/32 at 139-12 (L: 139-06 / H: 139-13) - decent volume too, ~275k by 0630ET.
• Textbook risk-off bull flattening as well: the 2-Yr yield is down 0.6bps at 0.133%, 5-Yr is down 1.3bps at 0.2913%, 10-Yr is down 2.8bps at 0.6975%, and 30-Yr is down 4.4bps at 1.4618%.
• Earnings weighed on equities in Europe; in the US after Wednesday's mixed bag of financials earnings, we get Morgan Stanley today at 0730ET.
• 0830ET sees most of the data slate: jobless claims, Philly Fed and Empire State mfg indices, and Sep import/export prices.
• In Fed speakers we get Atl's Bostic at 0900ET, StL's Bullard at 1010ET, Dallas' Kaplan / VC Quarles (at separate events) at 1100ET, Richmond's Barkin at 1400ET, and Minn's Kashkari at 1700ET.
• Trump / Biden election events will be eyed after hours.
• $65B in 4-/8-week bill sales at 1130ET, and NY Fed buys ~$2.425B of 1-7.5Y TIPS.

BOND SUMMARY: EGB/GILT Curve Flattening

• Gilts yields are 1-6bp lower and 2s30s is 5bp narrower.
• Bunds have similarly traded firmer with cash yields at the longer end trading down 5bp.
• OATs are only slighly lagging the bund rally. Last yields: 2-year -0.7219%, 5-year -0.6876%, 10-year -0.3422%, 30-year 0.3338%.
• BTPs have sold off and the curve has bear steepened. Yields are 2-4bp higher on the day.
• Supply this morning came from France (OATs, EUR7.2bn and Linkers, EUR1.0bn), Spain (Bono, EUR2.325bn and Ireland (Bills, EUR0.75bn).
• Mirroring the tightening of social restrictions in Northern England, London now faces additional curbs from midnight on Friday.
• The European data calendar was light again today. The final French CPI print for September was in line with the initial estimate.

DEBT SUPPLY

France Sells E7.24bn of M/T OATs Vs E6.5-7.5bn Target

• E1.900bn of the 0.0% May-25 OAT: Average yield -0.70% (0.10%), bid-to-cover 1.72x (4.1x)
• E3.155bn of the 0.0% Feb-26 OAT: Average yield -0.64% (-0.415%), bid-to-cover 1.72x (2.12x)
• E2.185bn of the 2.75% Oct-27 OAT: Average yield -0.59% (-0.38%), bid-to-cover 1.54x (2.25x)

Spain Sells E2.325bn of the 0% Jan-26 Bono Vs E2-3bn Target

• Average yield -0.345%, bid-to-cover 2.2x

Ireland sells E0.7bn of 6-Month Bills

• Average yield -0.58%, bid-to-cover 2.1x

OPTIONS

EURIBOR OPTIONS: Blue downside

3RZ0 100.37p, bought for 1.25 in 8,880 (ref 100.505, 10 del)

EURIBOR OPTIONS: Downside structure

ERZ0 100.50/100.37ps, bought for 1 in 4k

EGB OPTIONS: Bobl Call seller

OEZ0 135.50c, sold at 36.5 in 3.4k

Suggest profit taking

EURIBOR OPTIONS: More blue structure interest

More blue interest, and we have seen similar in Sterling and Eurodollar structures of late

• 3RH1 100.25p, bought for 1.75 in 2k (ref 100.505)

TECHS

US 5YR FUTURE TECHS: (Z0) Extends This Week's Gains

• 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: 125-302 Intraday high
• PRICE: 125-30 @ 11:13 BST Oct 15
• SUP 1: 125-27 Low Oct 14
• SUP 2: 125-23+ Low Oct 13
• SUP 3: 125-202 Low Oct 7 and the bear trigger
• SUP 4: 125-16+ 1.00 proj of Aug 4 - 13 sell-off from Sep 3 high

5yr futures have extended gains today and appear set to appreciate further. This week's rally marks a potential reversal of the recent decline between Sep 30 and Oct 7. Futures have traded through a resistance zone defined by the 20- and 50-day EMAs. A clear breach of this zone would strengthen a S/T bullish argument and open 125-316, Oct 5 high. Initial support is at 125-27, yesterday's low. The reversal trigger is at 125-202, Oct 7 low.

US 10Y FUTURE TECHS: ‌(Z0)‌ Bulls In Control ‌ ‌

• RES 4: 139-26 High Sep 29 and a key resistance
• RES 3: 139-25 High Oct 2
• RES 2: 139-17 76.4% retracement of the Sep 29 - Oct 7 sell-off
• RES 1: 139-13 Intraday high
• PRICE: 139-12 @ 11:33 BST Oct 15
• SUP 1: 139-04+ Low Oct 14
• SUP 2: 138-28+ Low Oct 13
• SUP 3: 138-20+ Low Oct 7 and the bull trigger
• SUP 4: 138-18+ Low Aug 28 and the bear trigger

Treasuries remain firm following this week's gains and price is higher again today. This week's gains signal a likely reversal of the recent bearish theme and if correct, highlights scope for stronger S/T gains. Futures have traded through a band of resistance defined by the 20- and 50-day EMAs. A clear breach of these averages would strengthen a bullish argument and open 139-17 next, a retracement level. Initial support is at 139-04+

US 30Y TECHS: (Z0) Pressuring The EMA Resistance Zone

• RES 4: 177-24 High Sep 4
• RES 3: 177-14 High Sep 17 and a bull trigger
• RES 2: 177-00 High Oct 2
• RES 1: 176-09 Intraday high
• PRICE: 176-00 @ 11:46 BST Oct 15
• SUP 1: 175-01 Low Oct 14
• SUP 2: 174.08 Low Oct 13
• SUP 3: 173-10 Low Oct 7 and the bear trigger
• SUP 4: 172-13 0.764 projection of Aug 6 - 28 decline from Sep 3 high

30yr futures are extending the recovery off the Oct 7 low of 173-10. This week's gains signal a reversal of the recent decline between Sep 29 and Oct 7. Futures have entered a band of resistance highlighted by the 20- and 50-day EMAs. Clearance of this zone would strengthen the current bullish theme and open 177-00, Oct 2 high. Note too that a trendline resistance drawn off the Aug 6 high has been probed. 175-01 is first support.