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Risk Appetite Resumes

US TSYS SUMMARY

Risk appetite gradually returned day after steady FOMC rate annc, markets leaning into the more hawkish message from policy makers despite not receiving specific details on speed or timing of tapering QE.

  • Early bond support evaporated after the annc of Apple 4pt issuance ($8.5b issued May'20 -- lead to speculative rate-locks), not to mention other issuers. $6.5B Apple launched later in second half -- lion's share of $15B total high-grade issuance.
  • Stronger equities helped risk appetite (ESU1 +20.0 after FI close) after China continues to quell investor concerns overnight.
  • Tsys had gapped higher post data, some desks initially citing GDP miss. Others said GDP was misleading as "as all inventory drawdown" related.
  • FI markets also absorbed $62B 7Y note (91282CCR0) auction: Tsys inched lower after 1.03bp tail with high yield of 1.050% vs. 1.037% WI. Bid-to-cover: 2.23x vs. 2.27x 5m avg, Indirect take-up: 58.37 vs. 59.97 in June, still well over 5M avg of 55.19%. Primary dealer take-up 22.18% vs. 18.69% last month remains below 25.06% 5 month avg. Direct take-up slips to 19.45 vs. 19.53% 5M avg.
  • The 2-Yr yield is down 0.2bps at 0.1996%, 5-Yr is up 1.8bps at 0.7287%, 10-Yr is up 3.3bps at 1.2659%, and 30-Yr is up 3.2bps at 1.9124%.
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