MNI US Morning FI Analysis: Risk-On Pivot

US TSYS SUMMARY: Grinding Lower Ahead Of Tuesday Deal "Deadline"

A tentative firming in risk assets to start the week, as market participants weigh the potential for fiscal stimulus from Washington (Speaker Pelosi's setting over the weekend of a Tuesday "deadline" for a deal w White House).

• Risk appetite also being helped to some extent by reports suggesting renewed Brexit deal impetus. Equities higher, dollar a little weaker.
• Dec 10-Yr futures (TY) grinding lower in the European morning on decent volume (250k @ 0630ET), last down 8/32 at 138-26 (L: 138-25/ H: 139-01.5).
• Curve bear steepening: 2-Yr yield is up 0.6bps at 0.1491%, 5-Yr is up 1.6bps at 0.3377%, 10-Yr is up 2.7bps at 0.7723%, and 30-Yr is up 3bps at 1.5583%.
• Also notable that over the weekend, the presidential race seen tightening by betting markets: Betfair sees the race at 60-40% in Biden's favor, vs 66-34% end-Fri (and 72-28% peak on Oct 11).
• Fed Chair Powell speaks at 0800ET, with NY's Williams at 0900ET, VC Clarida at 1145ET, Minn's Kashkari at 1200ET, Atl's Bostic at 1420ET and Philly's Harker at 1500ET.
• Light on data today though.
• 1130ET sees sale of $105B in 13-/26-week bills. NY Fed buys ~$1.750B of 20-30Y Tsys.

BOND SUMMARY: EGBs/Gilts Off to a Weak Start

European govies have started the week on a looser footing and have unwound some of last week's bull flattening. Markets have pivoted to a risk-on position more broadly with the dollar on the backfoot against the G10 and equities inching higher.

• Gilts trade weaker with cash yields broadly 1bp lower across the curve. The Dec-20 gilt future trades at 136.37 - towards the bottom of the morning range (L: 136.33 / H: 136.58).
• Bunds trade close to unch on the day. Last yields: 2-year -0.7824%, 5-year -0.8013%, 10-year -0.6135%, 30-year -0.1938%.
• OATs have underperformed relative to bunds, particularly at the longer end where cash yields are 2bp higher on the day.
• BTPs have sold off sharply at the curve has bear steepened. The 2s30s spread is 4bp wider.
• Supply this morning came from Germany (Bubills, EUR2.93bn), Netherlands (DTCs, EUR1.08bn), Belgium (OLOs, EUR1.80bn), and Slovakia (SlovGBs, EUR478mn).
• The data calendar is light today, although there is a strong slate of central bank speakers from the ECB (Pablo Hernandez de Cos, Mersch, Lagarde, Lane) and the BoE (Broadbent, Cunliffe).

DEBT SUPPLY

GERMAN T-BILL AUCTION RESULTS: Germany Allots E2.93bn of Bubills

• E1.472bn of the Mar 3, 2021 Bubill: Average yield -0.7201%, Buba cover 3.4x, bid-to-cover 3.4x
• E1.454bn of the Sep 29, 2021 Bubill: Average yield -0.7124%, Buba cover 4.0x, bid-to-cover 3.8x

NETHERLANDS AUCTION RESULTS: The Netherlands Sells E1.08bn of 6-Month DTCs Vs E0.5-1.5bn Target

• Average yield -0.7%, bid-to-cover 2.04x

BELGIUM AUCTION RESULTS: Belgium Sells Ebn of OLOs Vs E1.3-1.8bn Target

• E1.154bn of the 0.10% Jun-30 OLO: Average yield -0.399% (-0.23%), bid-to-cover 1.71 (1.79x)
• E0.649bn of the 1.45% Jun-37 OLO: Average yield -0.015%, bid-to-cover 2.63x

SLOVAKIA AUCTION RESULTS: Slovakia Sells E478mn of SlovGBs

• E136mn of the 0.125% Jun-27 SlovGB: Average yield -0.5008%, bid-to-cover 1.28x
• E149mn of the 0.75% Apr-30 SlovGB: Average yield -0.3856%, bid-to-cover 1.34x
• E79 of the 1.625% Jan-31 SlovGB: Average yield -0.3282%, bid-to-cover 1.75x
• E114mn of the 1.875% Mar-37 SlovGB: Average yield 0.0022%, bid-to-cover 1.32x

OPTIONS

EGB OPTIONS: Downside buyer

RXZ0 174.50p, bought for 39 in 3k (ref 175.91)

SHORT STERLING OPTIONS: More upside buyer

LH1 99.875/100/100.12c fly 1x3x2, bought for 1.75 in 3k

EURIBOR OPTIONS: 2yr mid downside

2RX0 100.50/100.37ps, bought for 0.75 in 5k (ref 100.565, 16 del)

EGB OPTIONS: Bund broken put fly

RXZ0 175/173/169 broken put fly, bought for 24/26 in 1k

SHORT STERLING OPTIONS: Upside interest

0LZ0 100.125/100.25cs, bought for 2 in 1k

TECHS

US 5YR FUTURE TECHS: (Z0) Under Pressure

• RES 4: 125-316 High Oct 5
• RES 3: 125-30+ 61.8% retracement of the Sep 30 - Oct 7 sell-off
• RES 2: 125-31 High Oct 15
• RES 1: 125-26 Intraday high
• PRICE: 125-226 @ 11:23 BST Oct 19
• SUP 1: 125-21 Low Oct 9
• SUP 2: 125-202 Low Oct 7 and the bear trigger
• SUP 3: 125-18 Low Aug 28 (cont)
• SUP 4: 125-16+ 1.00 proj of Aug 4 - 13 sell-off from Sep 3 high

5yr futures have started the week under pressure. The move below 125-23+ today, Oct 13 low exposes the key support at 125-202, Oct 7 low. A break of this level would negate recent bullish developments and instead confirm a resumption of the downtrend that has been in place since early August. This would open 125-16+, a Fibonacci projection. Key short-term resistance is at 125-31.

US 10YR TECHS: (Z0)‌ Selling Pressure Dominates ‌ ‌

• RES 4: 139-25 High Oct 2
• RES 3: 139-17 76.4% retracement of the Sep 29 - Oct 7 sell-off
• RES 2: 139-14 High Oct 15
• RES 1: 139-01+Intraday high
• PRICE: 138-25+ @ 11:38 BST Oct 19
• SUP 1: 138-20+ Low Oct 7 and the bull trigger
• SUP 2: 138-18+ Low Aug 28 and the bear trigger
• SUP 3: 138-16+ Low Jun 23 (cont)
• SUP 4: 138-12 61.8% retracement of the Jun - Aug rally (cont)

Treasuries have reversed last week's positive tone. Today's sharp sell-off marks an extension of the pullback from the recent high of 139-14 on Oct 15. The move through support at 138-28+, Oct 13 low exposes 138-20+, Oct 7 low and 138-18+, Aug 28 low. The latter is the bear trigger where a break would signal a resumption of the reversal that occurred on Aug 4. This would open 138-04+, a Fibonacci projection. Firm resistance is at 139-14.

US 30YR TECHS: (Z0) Starts The Week On A Softer Note

• RES 4: 177-14 High Sep 17 and a bull trigger
• RES 3: 177-00 High Oct 2
• RES 2: 176-10 High Oct 15
• RES 1: 174-27 Intraday high
• PRICE: 174-04 @ 11:49 BST Oct 19
• SUP 1: 173-10 Low Oct 7 and the bear trigger
• SUP 2: 172-17 Low Jun 5 (cont)
• SUP 3: 172-13 0.764 proj of Aug 6 - 28 downleg from Sep 3 high
• SUP 4: 172-00 Round number support

30yr futures are trading lower having started the week on a softer note. Price has breached 174-08, Oct 13 low, exposing the key level at 173-10, Oct 7 low. A break of 173-10 would negate recent bullish developments and instead confirm a resumption of the downtrend that has been in place since the Aug 6 reversal. This would open 172-17, Jun 5 low (cont) and 172-13, a Fibonacci projection. Key resistance has been defined at 176-10, Oct 15 high.

LOOK AHEAD