MNI US MARKETS ANALYSIS - 10y Yields Inch Closer to 2.00%

US TSYS SUMMARY: Treasury Sell-Off Returns

• Cash Tsys have sold off ~3bps this morning, in a very slight bear flattening. 2s10s remain within their rough post-FOMC range, currently at 62.5bps.
• 2YY are +3.1bps at 1.321%, 5YY +3.0bps at 1.795%, 10YY +3.1bps at 1.947% and 30YY +2.7bps at 2.244%.
• TYH2 has fluctuated this morning on heavy volumes (~160% of average), currently sitting at 126-20+ having moved lower to a new low of 126-15+. This briefly tested support of 126-16, the 1.236 projection of the Jan 13-19-24 swing.
• Data: Updated seasonal factors for CPI plus second tier data releases of NFIB small business optimism for Jan and international trade for Dec.
• NY Fed buy-op: Tsy 22.5Y-30Y, appr $1.825B (1030ET)
• Issuance: US Tsy $50B 3Y Note auction (1300ET)

STIR: Eurodollars Close To New Lows

• Fed Funds futures are back to pricing in rate hikes as seen through most of yesterday or higher after implied hikes dipped late on.
• This sees 34bps priced for March, 80bps following the June meeting (>three hikes since payrolls) and 135bps for 2022.
• Eurodollars meanwhile are close to new post-payroll lows touched briefly this morning. Aside from H2 down 0.5 ticks, they are down 2-2.5 ticks through the remaining whites and then 3-4 ticks across the rest of curve.
• The bulk of the adjustment since the Jan 26 FOMC remains through whites and reds, with EDZ2 pricing in an additional 29.5bps and EDZ3 an extra 19.5bps of hikes since the meeting, with less difference thereafter as the curve flattens abruptly.

EGB/GILT SUMMARY: EGBs Twist Steepen

EGBs started the session on a weak footing before clawing back early losses with curves steepening

• Gilts have sold off through the session with cash yields now up 4-6bp.
• The bund curve has twist steepened on the day with the 2s30s spread 6bp.
• OATs have similarly twist steepened with the 2s30s spread widening 5bp.
• Supply this morning came from Germany (ILBs, EUR590mn allotted), Spain (Letras, EUR5.847bn), Belgium (TCs, EUR2.518bn) and Finland (RFTBs, EUR987mn).
• In addition, a new EFSM 5-year bond and an existing EFSM 30-year issue were tapped via syndication with combined size of over EUR7bn. The UK similarly placed a 1.125% Oct-73 Gilt via syndication with size set at GBP4.25bn and an order book in excess of GBP40bn.

EUROPE ISSUANCE UPDATE:

• E413mln 0.10% Apr-26 ILB, Avg yield -2.02% (Prev. -1.88%), Bid-to-cover 2.37x (Prev. 1.84x)
• E177mln 0.10% Apr-46 ILB, Avg yield -1.60% (Prev. -1.70%), Bid-to-cover 1.74x (Prev. 0.88x)

EUROZONE ISSUANCE: EU 5/30-year syndication: Final terms

New EFSM short 5-year: Final terms set earlier

• Maturity: 22 October 2026
• Size E2.2bln WNG
• Spread set at MS -23bp (guidance was -21bp area)
• Books in excess of E19bln (incl. E700mln JLM)

Re-open 0.70% Jul-51 NGEU tap: Final terms set now

• Maturity: 6 July 2051
• Size set at E5bln (MNI had expected E4-6bln)
• Spread set at MS + 29bps (Guidance originally MS +32bp area then revised toMS + 30bp +/-1bp WPIR)
• Books in excess of E60bln (incl. E450mln JLM)

• Deal Size set at: GBP4.25bln (MNI had looked for GBP4.00-4.25bln)
• Spread set earlier at 1.625% Oct-71 gilt -3.0bps (guidance had been -3.0/-2.5bps)
• Orderbook closed in excess of GB40bln (including JLM interest of GBP4bn)
• Coupon : 1.125% SA, ACT/ACT (Short first to 22-Apr-2022)

EUROPE OPTION FLOW SUMMARY:

Eurozone:

Large Bund Option, looks done vs 4.2k futures at 165.05
RXJ2 162/160.5/159/157.5 put condor, bought for 34/34.5 in 20k vs RXH2 166/164.5ps sold at 49 in 20k

DUH2 112/111.90/111.80/111.70p condor, sold at 1 in 3k

ERM2 100.375/100.50cs vs ERU2 100.375c, bought the cs for 2 in 7.2k
ERU2 100.25 call, bought for 9.5 in 30k
ERU2 100.125/100.25/100.375c fly, bought for 2 and 2.25 in 10.4k

0EM2 97.75/97.4375ps 1x1.5, bought for 4.5 in 12k

FOREX: Quieter Markets Allow for EUR Consolidation

• The greenback trades in minor positive territory, with the USD Index briefly inching above the Friday highs to make further progress through last week's losses. This keeps the index pinned between the 100- and 50-dmas of 95.241 and 96.019 respectively.
• Newsflow and macro catalysts have been few and far between Tuesday, with US equity futures trading wholly inside the Monday range so far. The pause in stock market volatility is allowing markets to consolidate, prompting some weakness across the single currency and putting the EUR at the bottom of the pile across G10.
• Elsewhere, GBP trades more favourably, helping GBP/USD trade either side of the 1.3550 level. The 100-dma remains a near-term solid support, undercutting at 1.3509.
• US and Canadian trade balance data takes focus, alongside annual CPI revisions data ahead of the more in-focus inflation release on Thursday. The central bank speaker slate is lighter, with just ECB's Villeroy on the docket.

FX OPTIONS: Expiries for Feb08 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1150-65(E528mln), $1.1200(E1.2bln), $1.1250-60(E889mln), $1.1300-20(E2.3bln), $1.1380-00(E1.6bln)
• USD/JPY: Y115.50-65($636mln)
• GBP/USD: $1.3495-10(Gbp1.0bln), $1.3560(Gbp1.1bln)
• AUD/USD: $0.7100(A$732mln), $0.7125-35(A$645mln), $0.7150-55(A$521mln), $0.7165-75(A$893mln)

Price Signal Summary - S&P E-Minis Remain Below The 50-Day EMA

• In the equity space, S&P E-minis are unchanged but still trading below recent highs and below the 50-day EMA that intersects at 4565.55 today. This average remains a key pivot resistance where a break is required to suggest scope for a stronger rally that would initially open 4671.75, the Jan 18 high. For bears, a resumption of weakness would refocus attention on 4212.75, the Jan 24 low and a key support. EUROSTOXX 50 futures remain vulnerable despite the recovery so far this week. The 50-day EMA - at 4200.10 continues to act as a firm resistance. The reversal lower from above the EMA suggests that recent gains between Jan 24 - Feb 2 have been a correction. If correct this highlights potential for a retest of 3990.50, the Jan 24 low and the bear trigger.
• In FX, EURUSD is still trading closer to its recent highs. Last week’s bear channel breakout, drawn from the Jun 1, 2020 high, highlights a more significant bullish reversal. The focus is on 1.1483/84 next, the Jan 14 and Feb 4 high. A break would resume bullish activity. Support is seen at 1.1341, the former bear channel top. GBPUSD maintains its short-term bullish condition following last week’s gains. The focus is on 1.3662 next, Jan 20 high. Support lies at 1.3491/3435, Feb 7 and Feb 1 low. USDJPY remains above its key short-term support at 113.47, Jan 24 low. The outlook is bullish and the focus is on 116.35, Jan 4 high and a key resistance. Initial firm resistance is at 115.68, Jan 28 high. Initial support lies at 114.16, the Feb 2 low.
• On the commodity front, Gold continues to trade above the recent low of $1780.4, Jan 28 low. Attention remains on the recent break of the bull channel base drawn off the Aug 9 low. A resumption of weakness would open $1753.6, the Dec 15 low. A stronger recovery however would expose key resistance at $1853.9, the Jan 25 high. WTI futures remain in a clear uptrend but appear to be correcting lower. The focus is on a climb towards $94.13 next, 2.618 projection of the Dec 2 - 9 - 20 price swing. Support is seen at $86.34, the Jan 31 low.
• In the FI space, Bund futures remain vulnerable. The focus is on 165.24 next, the May 7, 2019 low (cont). Gilts remain under pressure and sights are on 120.43, 1.764 projection of the Jan 13 - 19 - 24 price swing.

EQUITIES: Equity Futures Hit Highs (Briefly) on China State-Buying Headlines

• US equity futures lurched higher - albeit briefly - on Bloomberg headlines reporting that Chinese state funds are said to be buying stocks in order to slow the recent market decline.
• The headlines follow the ~8% decline for the CSI300, ~7% decline for the Shanghai Comp over the course of 2022. Markets closed at the lows ahead of the Lunar New Year holiday (on Jan28) but have added near 3% since, with the resumption of trade at the beginning of this week.
• The CSI 300 staged an impressive intraday reversal overnight, after the index dropped 2.4%, before paring the decline to secure a -0.6% close.

COMMODITIES: Oil Lower on Volume Surge, With Focus Remaining on Iran, Russia

• Both WTI and Brent crude futures trade in solid negative territory, with downside accelerating in recent trade as volume picks up markedly headed into the NY crossover. WTI and Brent now trade comfortably below both the psychological supports of $90/bbl and $91/bbl respectively with both front-month futures seeing over 15,000 contracts change hands inside 10 minutes.
• Price action looks driven by order flow and a technical break through support, but newsflow remains oil bearish as focus rests on Iran and Russia.
• Overnight, Russia's top negotiator told Kommersant that proposals to revive the Iran nuclear deal are "on the finish line" with documents being finalised.
• Separately, French President Macron has talked against the possibility of a near-term escalation of Russia-West tensions, stating that he managed to get from Putin that there was no further escalation in the Ukraine situation.
• WTI futures remain in a clear uptrend but appear to be correcting lower. The focus is on a climb towards $94.13 next, 2.618 projection of the Dec 2 - 9 - 20 price swing. Support is seen at $86.34, the Jan 31 low.