US CreditMkt WkAhd:Traders Eye 2/5/7 Aucns;5/30Y Crve;Debt Lmt

--Traders Also Watch US/Australian Spreads Tighten 

By Sheila Mullan

     NEW YORK (MNI) - Traders in the U.S. Treasuries have many things to watch

next week: a busy US Treasury 2/5/7-year note auction calendar and most likely,

an ongoing 5/30-year Treasuries flattening move. 

     Plus there will be tax reform progress in Congress and US debt limit

negotiations. The temporary lifting of the debt ceiling will expire Dec. 8th.

     The Treasury has a crowded supply calendar: a $26 billion 2-year note

auction Monday at 11:30 a.m. ET and a $34 billion 5-year auction at 1:00 p.m.

There will also be a $28 billion 7-year note auction on Tuesday, and a $24

billion 13-week bill auction and a $36 billion 26-week bill auction Monday too.

     The debt limit will swing back into focus this week. Politico said US Pres.

Donald Trump and congressional leaders will be meeting Tuesday, Nov. 28th at

3p.m. ET, to try to "hammer out a year-end agreement to avert a government

shutdown, according to multiple sources, as Capitol Hill careers toward a

legislative pile-up next month."

     Meanwhile the Treasury curves traded fairly quietly Friday but it's likely

recent flattening has room to run. The Treasury said it will favor increasing

front end/bill debt issuance once it normalizes its auction issuance after a

debt ceiling situation solution. 

     There also likely will be good month-end buying out the curve as the

Bloomberg/Barclays month-end duration index has a large 0.11 years estimated

index extension into the month end, which is Thursday, Nov. 30th. Plus the

2/5/7-year note auctions would push the curve flatter, too, said traders.

     The 5/30-year Treasury curve traded mildly flatter at +69.40 bps Friday at

1:00 p.m. ET, vs +69.5 bps at 3pm ET Wednesday. The 2/30Y curve traded flatter

too at +101.1 bps vs. +101.7 bps at 3pm ET Wednesday and +98.7 bps Tuesday and

+103.2 bps Monday.

     Next week, the overnight repo market should see the 5-year note tighten

more amid auction-tied shorts, the 5/30-year curve flattening trend, said

traders. 

     Also the Nov. 27th week is expected to be busy with heavy U.S. dollar

high-grade corporate bond issuance. That week and the first week of December are

prime time to sell new corporate debt before year-end, said Ron Quigley, head of

US corporate bond syndicate at service-disabled broker Mischler Financial. His

syndicate desk poll of suggested an average estimate of $29.02 billion of

issuance next week.

     And the Fed spotlight will be on the Tuesday 10:00 a.m. ET Senate Banking

Committee confirmation hearing on Fed Gov. Jerome "Jay" Powell, noted analysts.

     But RBC rates strategists Michael Cloherty and Ashutosh Kamat noted market

attention at the same time may be distracted, as the Fed and US Treasury "hold

their "third annual conference on the Structure of the US Treasury Market" so

"attention will flip back and forth between Powell" and Treasury Secretary

Mnuchin.

     They added the "focus is likely to be on whether or not there will be the

public release of TRACE data for Treasuries. Since the summer, regulators have

been collecting and analyzing trade data from FINRA members, but have not been

capturing trade data from non-FINRA members (a growing part of the market).

Nonetheless, we think the debate about public release" of Treasuries data "will

be white-hot."

     The RBC analyts added that if TRACE for Treasuries flow data were made

"public even with a significant lag, anyone trying to identify hedging patterns

can zero in" on "price action immediately after a large trade," and "tweak" algo

models to adjust "prices and positions well" before "hedging flows" are done. 

     They said off-the-run Treasuries "are problematic" as from a liquidity

perspective, off-the-run and on-the-run Treasuries "are different asset classes"

as "time needed to move risk in a deep

off-the-run is often measured in weeks," not "microseconds." Trade data

publication "will make intermediaries even more wary of taking positions in

off-the-runs, exaggerating the on-the-run/off-the-run liquidity differential,"

they said.

     Traders noted spreads between the US and Australian 10-year notes keep

tightening: Friday's spread is only 16 bps: US 10-year note yield was 2.340% at

the early 1:00 p.m. ET close, vs. 2.5% Australian 10-year yield. That compared

to a recent wide spread of 280 bps (+2.80%) on Feb. 28, 2008 and recent tight of

-9 bps on May 29, 2000. Accounts have sold US 10-year notes vs. buying

Australian government bonds, traders said. "The spread has flattened up a lot"

and may "be headed toward a flat (0) spread," said an observer. 

     And traders will watch the Saudi Arabia/Iran/Lebanon nexus and North Korea,

too. And Dec. 29 yearend could be volatile, as banks trim balance sheets,

keeping US$ funding in-house to fortify yearend earnings.

     Meanwhile, the Fed has begun gradual reduction of its $4.5 trillion balance

sheet ($4.2 trillion in U.S. Treasuries and Agency MBS). Before any potential

December rate hike, the Fed started its taper/Fed balance sheet reduction

program in October to whittle down  Treasuries and MBS. Fed bought bonds to

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

let both Treasuries and MBS run off. Once tapering begins, the Treasury would

have to figure out how to slice its debt issuance to cope with such a Treasuries

runoff.

Below is monthly Fed reinvestment cap schedule:

--- MONTHLY CAPS ON SOMA SECURITIES REDUCTIONS

--------------US TREASURIES.../AGENCY MBS/MONTH CAP

- Oct-Dec 2017 $6 billion/$4 billion

- Jan-Mar 2018 $12 billion/$8 billion

- Apr-Jun 2018 $18 billion/$12 billion

- Jul-Sep 2018 $24 billion/$16 billion

- From Oct 2018** $30 billion $20 billion

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

Giovanny Guerrero of MNI/NY.

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

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

---------------------------------------------------------------------

- 27-Nov 1000 *** Oct new home sales 0.667M/0.629M

- 27-Nov 1030 ** Nov Dallas Fed manufacturing index 27.6/--

- 27-Nov 1130 am ET $36B six-month T-bill auction bidding deadline

- 27-Nov 1130 am ET $26B Treasury 2-year note auction bid deadline

- 27-Nov 1300 pm ET $34B Treasury 5-year note auction bid deadline

- 27-Nov 1300 pm ET $24B three-month T-bill auction bidding deadline

- 27-Nov 1830 MinFed Kashkari: guided chat:Win.St.Univ.Twn Hall,Minn Q/A

- 27-Nov 1900 NY Fed Dudley moderated chat on post crisis econ NY Q/A

- 28-Nov 0830 ** Oct advance goods trade gap -65.4 -- b USD

- 28-Nov 0830 ** Oct advance wholesale inventories +0.3 -- %

- 28-Nov 0830 ** Oct advance retail inventories -0.9 -- %

- 28-Nov 0855 ** 25-Nov Redbook retail sales m/m -0.7 -- %

- 28-Nov 0900 ** Sep FHFA Home Price Index 0.7 -- %

- 28-Nov 0900 ** Q3 FHFA Quarterly Home Prices 1.6 -- %

- 28-Nov 0900 ** Sep Case-Shiller Home Price Index 0.5 -

- 28-Nov 09:45 am ET US Sen BkPanel:Confirm.hrng:Fed Chr nom Powell DC

- 28-Nov 1000 * Oct bldg permits revision -- -- m

- 28-Nov 1000 ** Nov Richmond Fed Mfg Index 12 --

- 28-Nov 1000 *** Nov Conference Board confidence 125.9/123.5

- 28-Nov 1015 Phi Fed Harker:"Fncl Safety for Aging Populatn" Philadlpia

- 28-Nov 1030 ** Nov Dallas Fed services index 18.6 --

- 28-Nov 1300 am ET: $28B US Tsy 7-yr note auction bid deadline

- 29-Nov 0700 ** 24-Nov MBA Mortgage Applications --/-- 

- 29-Nov 0830 *** Q3 GDP (2nd) 3.0%/3.3%

- 29-Nov 0830 *** Q3 GDP Price Index 2.2%/2.2%

- 29-Nov 0830 NY Fed Dudley:Rutgers Fireside Chat,New Brunswick, NJ Q/A

- 29-Nov 1000 ** Oct NAR pending home sales index 106.0/--

- 29-Nov 1000 Fed Chr Yellen Testifies Econ Outlk: Joint Econ Comm; DC

- 29-Nov 1030 ** 24-Nov crude oil stocks ex. SPR w/w --M/-- m bbl

- 29-Nov 1350 SF Williams at 54th Ann Econ Forecast, ASU Phoenix Q/A

- 29-Nov 1400 Fed Reserve releases Beige Bk for upcoming FOMC mtg, DC

- 30-Nov 0830 ** 25-Nov jobless claims --k/-- k

- 30-Nov 0830 ** Oct personal income 0.4%/-- %

- 30-Nov 0830 ** Oct current dollar PCE 1.0%/-- %

- 30-Nov 0830 ** Oct total PCE price index 0.4%/-- %

- 30-Nov 0830 ** Oct core PCE price index 0.1%/-- %

- 30-Nov 0830 Clevld Fed Mester moderates fncl innovatn panel Wash DC

- 30-Nov 0900 * Nov ISM-Milwaukee Mfg Index 63.61/--

- 30-Nov 0945 ** Nov MNI Chicago PMI 66.2/--

- 30-Nov 0945 * 26-Nov Bloomberg comfort index -- --

- 30-Nov 1030 ** 24-Nov natural gas stocks w/w -- -- Bcf

- 30-Nov 1230 Fed VC Supervsn Quarles speaks Cleveld Fed/OFR Conf DC

- 30-Nov 1230 Clevld Fed Mester introduces Fed VC Quarles " DC

- 30-Nov 1500 * Oct farm prices -1.7%/-- %

- 30-Nov 1630 ** 29-Nov Fed wkly securities holdings --T/-- T USD

- 01-Dec - *** Nov NA-made light vehicle sales SAAR 13.8M/-- m

- 01-Dec 09:05am StL Fed Bullard:Econ/Pol:Econ Brfg:Little Rock,AK; Q/A

- 01-Dec 09:30am Dall Fed Kaplan:Guided Q/A:Border Econ McAllen TX Q/A

- 01-Dec 0945 *** Nov Markit Mfg Index (final) --/--

- 01-Dec 1000 *** Nov ISM Manufacturing Index 58.7/--

- 01-Dec 1000 * Oct construction spending 0.3%/-- %

- 01-Dec 10:15 am PhiFed Harker:Inclusv Econ Grwth:Fed Pol Forum; Phil

- 01-Dec 1100 ** Q4 St. Louis Fed Real GDP Nowcast 3.21%/--%

- 01-Dec 1115 ** Q4 NY Fed GDP Nowcast 3.7%/--%

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

[TOPICS: MTABLE,MNUAU$,M$U$$$,M$$FI$]