REPEAT: US Credit Mkt Wk Ahd: Traders Eye Jobs React,Auctions

Repeats Story Initially Transmitted at 18:59 GMT Oct 6/14:59 EST Oct 6

By Sheila Mullan

     NEW YORK  - Traders in the U.S. Treasuries will use the next

holiday-shortened week to see how markets digest the latest mixed September jobs

report, how the 3/10/30-year auctions get digested and what's ahead in Federal

Reserve policy signals.

     The Treasuries market on Friday looked past the hurricane-affected weak

33,000 September nonfarm payroll employment decline, to focus on the firmer 0.5%

Average Hourly Earnings gain and a lower 4.2% jobless rate.

     Both items could allow the Federal Reserve to tighten the key fed funds

rate by a quarter-point in December, said traders.

     Analysts at TD said the US rates market "bear flattened" on Friday "in the

wake of the distorted September payroll report. Market pricing for a December

hike rose to 85% from 75%."

     But before the December rate hike, the Federal Reserve will start its

taper/Fed balance sheet reduction program in October. The Fed will whittle down

its huge $4.5 trillion Fed balance sheet, which includes $4.2 trillion in

Treasuries and Mortgage-Backed Securities (MBS). The Fed had bought bonds to

alleviate the market tightness since the financial crisis of 2008-2009.

     The Fed will let its Treasuries and/or MBS run off its portfolio. Once

tapering begins, the U.S. Treasury would have to figure out how to slice its

debt issuance to cope with such a runoff of Treasuries.

     Traders later Friday turned their focus from the Fed to geopolitical risks

as Treasuries bounced off the day's lows on dip buying into the long U.S.

holiday weekend, and lingering North Korea risk/missile worries. black boxes

bought Treasuries as the U.S. dollar had weakened vs. the Japanese yen.

     Looking forward, Monday is the US Columbus Day bond holiday and Canadian

Thanksgiving Day.

     Also, Treasuries should continue to see foreign exchange-tied buying by

black box hedge funds, if the U.S. dollar weakens against the Japanese yen. And

there will be related reverse selling if the U.S. dollar firms up vs. the

Japanese yen, said traders.

     "Between the truncated auction schedule and an update on the inflation

front in the form of Friday's CPI report the market will have plenty of

potential triggers for defining a new trading direction," said BMO analyst Ian

Lyngen.

     "While 10-year yields touched 2.40% in the wake of the weakest nonfarm

payroll employment print since 2010 (counterintuitive to be sure), that pivotal

level appears to be holding for the time being - after all, the impact of the

hurricanes on the BLS series made it difficult to be overly bullish despite the

negative payrolls print," he added.

     "On the other hand, the market seemed more eager to make another attempt at

pricing in some degree of wage inflation as September's Average Hourly Earnings

figures showed a +2.9% year-on-year gain for the peak of the cycle," Lyngen

said.

     "There was surely a bit of storm-related wage influence, but the stronger

revisions to August's AHE (up to 2.7% from a 2.5% initial estimate) offered

solace to those looking for evidence of a kink in the Phillips Curve," he said.

"We're certainly open to the notion that the long-awaited acceleration of wage

growth has finally arrived, but to say that our skepticism is running high as

the market was more content to dismiss NFP over wages would be an

understatement.

     "Regardless of the absolute level of wage growth, it's the translation into

higher realized inflation that has been so conspicuously absent during this

cycle," said Lyngen. "Even with healthy gains in earnings, if there is no

acceleration of demand side inflation, the narrative for the real economy hasn't

materially changed. The Fed has repeatedly cautioned against looking for data

from the post- hurricane period to provide any conclusive economic trend and

with that context, we will be content to leave the wage question as an open one

until receiving more clarity later this year."

     He adds the "market is in a very narrow range and we don't anticipated that

changing in the week ahead. With China closed all" the Oct. 2nd week "and much

of Asia shuttered as well, the return of this important region will provide the

first look at demand following an uninspired set of US data releases."

     Traders will be interested to see the U.S. and foreign demand at at

Wednesday's 11:30 a.m. ET $24 billion 3-year note auction and the $20 billion

10-year note reopening, which follow a Monday Columbus Day holiday and a

bill-dominated auction schedule Tuesday. Thursday then brings a $12 billion

30-year bond reopening auction at the usual 1pm time.

     "In light of the recent backup in yields, our outlook for the auction

process is constructive and we would come out of the event long in Treasuries,

especially if any supply concession entails a breach of the 2.40% yield-level in

10-year notes," said BMO's Lyngen. "That is a departure from our typical

assumption that a compressed auction schedule will limit the set-up, and make

underwriting the Treasury Department's issuance more dubious."

     And Japanese or Asian/Chinese buyers of Treasuries may want to see if the

market can stabilize next week before buying more, said observers. Some Japanese

accounts like to buy around the 2.40% 10-year note, and did buy as Friday the

yield briefly hit 2.402% at 10:04 a.m. ET, before backing off, said traders. The

yield is at 2.364% currently.

     On international risks, some traders still expected there could be at least

more mild on/off safe-haven bid next week on the North Korea risk.

     Traders expected some corporate rate-lock hedging action next week, in case

of moderate US high-grade corporate bond issuance.

     -- Questions? sheila.mullan@marketnews.com 212-669-6432; story also

reflects contributions from Giovanny Guerrero of MNI/New York.

     -- A calendar of market events (data, Fed speakers) is below:

Date/Time ET Prior Data/And MNI Econ Poll Median Estimates

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07-Oct 1145 Boston Fed Rosengren at 84th Intl Atlan Econ Conf; Montreal

09-Oct 1000 * Sep ETI 134.62/--

10-Oct Annual IMF Meeting in Washington D.C.

10-Oct 0600 ** Sep NFIB Small Business Index 105.3/--

10-Oct 0855 ** 07-Oct Redbook retail sales m/m 0.0/-- %

10-Oct 1000 MinnFed Kashkari at Regnl Econ Condtns Conf Minneapolis

10-Oct 1000 ** Oct IBD/TIPP Optimism Index 53.4/--

10-Oct 1000 ** Aug JOLTS job openings level 6170/-- k

10-Oct 1000 ** Aug JOLTS quits rate 2.2%/-- %

10-Oct 1100 ** Oct NY Fed expectations survey --/--

10-Oct 1130am ET US Tsy $35.0B 4-Week Bill auction ***

10-Oct 1130am ET US Tsy $20.0B 52-Week Bill auction***

10-Oct 1130am ET US Tsy $42.0B 13-Week Bill auction ***

10-Oct 1130am ET US Tsy $36.0B 26-Week Bill auction ***

10-Oct 1500 * Sep Treasury Allotments (final) -- -- b USD

10-Oct 2000 Dal Fed Kaplan Q/A Stanford Inst for EconPol Rsrch Mtg Q/A

11-Oct Annual IMF Meeting in Washington D.C.

11-Oct 0700 ** 06-Oct MBA Mortgage Applications -0.4 -- %

11-Oct 0715 Chi Fed Evans guided talk at Swiss Day 2017 in Zurich; Q/A

11-Oct 1000 IMF MD Lagarde talk on G20/Africa at IIF Annual Mtg DC

11-Oct 11:30 am ET US Tsy $24.0B 3-Year Note auction

11-Oct 13:00 pm ET US Tsy $20.0B 10Y Note Reopening auction

11-Oct 1310 NY Fed EVP Potter:Amer.Exit Strategies EU/US Views; NY

11-Oct 1400 Fed releases minutes for Sept 19-20 FOMC mtg Wash DC

12-Oct Annual IMF Meeting in Washington D.C.

12-Oct 8:30am ET Sec of Tsy Mnuchin speaks at 2017 IIF Annual Mtng DC

12-Oct 0830 ** 07-Oct initial weekly jobless claims --/252k

12-Oct 0830 *** Sep Final Demand PPI 0.2%/0.4%

12-Oct 0830 *** Sep PPI ex. food and energy 0.1%/0.2%

12-Oct 0830 *** Sep PPI ex. food, energy, trade 0.2%/-- %

12-Oct 0945 * 08-Oct Bloomberg comfort index --/--

12-Oct 1030 Fed Gov Powell keynote on Emerg Mkts; IIF Annual Mtg; DC

12-Oct 1030 ** 06-Oct natural gas stocks w/w --/-- Bcf

12-Oct 1230 pm ET Fed Gov Brainard: Rethinkg Macroecon Pol conf DC Q/A

12-Oct 1100 ** 06-Oct crude oil stocks ex. SPR w/w -6.02M/-- m bbl

12-Oct 1100 ** Sep Kansas City Fed LMCI 0.40/--

12-Oct 1300 pm ET Us Tsy $12.0B 30Y Bond Reopening auction

12-Oct 1400 ** Sep Treasury budget balance -$107.7B/-$3.0B USD

12-Oct 1630 ** 11-Oct Fed weekly securities holdings --/--T USD

12-Oct 2115pm Atl Fed Bostic: US Bal Sheet Normalizatn; Hong Kong Q/A

13-Oct Annual IMF Meeting in Washington, D.C.

13-Oct 0830 *** Sep CPI 0.4%/0.6%

13-Oct 0830 *** Sep CPI Ex Food and Energy 0.2%/0.2%

13-Oct 0830 *** Sep retail sales -0.2%/+1.5%

13-Oct 0830 *** Sep retail sales ex. motor vehicle 0.2%/0.8%

13-Oct 0830 *** Sep retail sales ex. mtr veh, gas -0.1%/-- %

13-Oct 0830 Boston Fed Rosengren opening remarks: Boston Fed Econ Conf

13-Oct 1000 * Aug business inventories 0.2%/0.5%

13-Oct 1000 *** Oct Univ Michigan consumer sentiment index(p) 95.1/--

13-Oct 1025 ChiFed Evans:Wisc Summit Fncl Literacy; Green Bay, WI Q/A

13-Oct 1100 ** Q4 St. Louis Fed Real GDP Nowcast --%/-- %

13-Oct 1115 ** Q4 NY Fed GDP Nowcast --%/-- %

13-Oct 1130 DallFed Kaplan at CFA Institute F/I Mgmt Conf Boston Q/A

13-Oct 1300 Fed Gov Powell:keynote Pol/Discretn:Boston Fed Econ Conf

13-Oct 1410 Ex-Fed Gov Kroszner speaks on global mon pol; IIF mtg DC

14-Oct Annual IMF Meeting in Washington D.C.

15-Oct Annual IMF Meeting in Washington D.C.

15-Oct 0900 Fed Chr Yellen:global eco/growth:G30 Intl Bk Seminar DC Q/A

15-Oct 0900 People's Bk of China head Zhou: G30 Intl Bk Seminar DC Q/A

15-Oct 0900 BOJ's Kuroda on econ/growth at G30 Intl Bk Seminar DC Q/A

15-Oct 0900 ECB VP Constancio on econ/growth;G30 Intl Bk Sem DC Q/A

--MNI New York Bureau; tel: +1 212-669-6432; email: sheila.mullan@marketnews.com