US TSYS BEAR FLATTEN: FOMC UNVEIL BAL SHEET CUT,MAYBE DEC HIKE

     US TSYS SUMMARY: *** Treasuries slid after FOMC said will proceed with

balance sheet reduction in Oct, kept FFR steady at 1%-1.25%, kept Dec. rate hike

on table (11 dots saw one more rate hike in 2017). FOMC voted 9-0. Median FFR

projectns unchngd for 2017, 2018 but trimmed for 2019 and long run in June SEP.

Cited temporary effects on inflation & econ from hurricanes; kept near-term

assessment "roughly balanced." 

- Tsys began NY firmer and kept to a range, mixed rate levels, with mild two-way

flows, flatteners in 2/5Y, 2/10Y, light sovereign/corporate debt issuance. 

- Tsys saw brisk heavy selling after FOMC, and also 5/30Y, 2/30Y curves

flattened after FOMC, also fast selling too in the TIPS. Some dip buying

surfaced near the Tsy 3pm ET futures close. 

- Block sale of 5,000 TYZ 10Y Tsy futures at 14;01pm ET. 

- US swaps: Tighter; receiver position holders caught break in short end, sprd

curve steepening in post-FOMC selloff; also a $100M apparent payer of US$ 5Y

swap at 1.96017 at 2:50pm ET. 

- TSYS 3PM ET: 2Y 1.446%, 3Y 1.596%, 5Y 1.884%; 7Y 2.116%; 10Y 2.278%; 30Y

2.822%

US TSYS SUMMARY: Pt II: More US rates action Wed, US Eurodlr futures had a sale

of 20,000 EDZ at 98.50 to -.505 (before 2:48pm ET); total volume 30k at 98.50. 

- Also was an apparent 2:14pm ET steepener done in Eurodlr futures: 20K June

'18, 98.33, cross on offer vs. 20K Red Jun'19, 98.105, cross on bid; 

- And sale of 20K in Dec'17 Eurodlr futures done at 98.505 (-0.025). - Tsy

futures meanwhile had an early block at 10:03am ET, sale of 5,000 TYZ at

126-01.5, sell through. 

- Fed Chair Yellen comments at her news conference included: 

MNI: YELLEN: REPEATS POLICY 'NOT ON A PRE-SET COURSE' 

MNI: YELLEN SAYS GRADUAL RATE HIKES WARRANTED 

MNI: YELLEN: EXPECT INFLATION TO MOVE HIGHER, STABILIZE AROUND 2% 

MNI: YELLEN: SHORTFALL IN INFLATION UNRELATED TO LARGER ECON CONDS 

MNI: YELLEN: EFFECTS HOLDING DOWN INFLATION TRANSITORY

US TSY FUTURES CLOSE: Lower, well off post FOMC lows, choppy trade. Current

futures levels: 

* Dec Ultra bonds down 13/32 at 166-02 (165-25L/167-00H) 

* Dec 30-yr Bond futures down 15/32 at 153-21 (153-16L/154-14H) 

* Dec 10-yr futures down 13.5/32 at 125-18 (125-17L/126-05.5H) 

* Dec 5-yr futures down 9.25/64 at 117-19.5 (117-18.75L/118-00.75H) 

* Dec 2-yr futures down 3.25/32 at 107-28 (107-27.75L/108-00.5H)

US EURODLR FUTURES CLOSE: At/near session lows on heavy selling following latest

FOMC policy annc. Note, December rate hike probability climbs to 59.2% from

42.8% prior to FOMC. Current White pack (Dec'17-Sep'18): 

* Dec'17 -0.030 at 98.500 

* Mar'18 -0.035 at 98.405 

* Jun'18 -0.045 at 98.320 

* Sep'18 -0.055 at 98.250

* Red pack (Dec'18-Sep'19) -0.060-0.065 

* Green pack (Dec'19-Sep'20) -0.060-0.065 

* Blue pack (Dec'20-Sep'21) -0.060-0.055 

* Gold pack (Dec'21-Sep'22) -0.050-0.045

US SWAPS: Spds tighter by the bell, short end rebounded off post FOMC narrows

amid light receiver unwinds. Spd narrower position holders caught a break in the

short end, spd curve steepening out in the post FOMC sell-off. Some rate paying

stop-outs in 2s. Otherwise light trade all seeion, sidelined accts into Fed

annc. OTC and exchange traded option vol cratered as Fed held rates steady, nod

toward Dec hike, balance sheet reduction starts in Oct as expected. Latest

spread levels: 

* 2Y -0.26/28.82 

* 5Y -0.38/7.81 

* 10Y -0.25/-3.88 

* 30Y -0.66/-34.25

OUTLOOK: *** Data/speaker calendar (prior, estimate):

- Sep 21 16-Sep Initial weekly jobless claims (284K, 305) 0830ET

- Sep 21 Sep Philadelphia Fed Mfg Index (18.9, 17.1) 0830ET

- Sep 21 Jul FHFA Home Price Index (0.1%, --) 0900ET

- Sep 21 17-Sep Bloomberg comfort index (51.9, --) 0945ET

- Sep 21 Aug leading econ indicators (+0.3%, +0.2%) 1000ET

- Sep 21 15-Sep natural gas stocks w/w 1030ET

- Sep 21 Q2 domestic non-financial debt 1200ET

- Sep 21 US Tsy $11.0B 10-year TIPS reopening 1300ET

- Sep 21 20-Sep Fed weekly securities holdings 1630ET

Eurodollar/Treasury option summary

Eurodollar options,

Pit/screen:

+25k EDZ 83/85 2x1p spds, 2.75

-20k EDZ 85/87 c spds, 5.25 vs. 98.50

+20k EDU 86c, 2.25 vs. 98.54/0.26%

17.5k EDZ 86/87c spds vs. 83p, 1.75

+15k EDZ 86/87/88c flys, 1.75 vs. 98.75/0.05%

-10k EDM 86c, 3.0 vs. 9838/0.18%

-6.5k EDZ 85/86 strangles, 6.0 vs. 98.53/0.16%

5k EDH 85/E2H 82c spds, 3.0 flattener

3k EDZ 82/83/85p flys

-3k EDZ 83/86c spds, 12.0

+2.75k EDU 81/85 R/R, 0.0p ovr

+2.5kEDZ 87c, 1.0

2k EDZ 85/86/87c flys

-5k EDM'19 80/82p spds

+20k EOV 83/86c spds, 1.0

11.7k EOZ 81p, 4.5

+10k EOV 83/86c spds, 1.0

+10k EOX 80p, 1.5

8k EOV 80/81/82p flys

7.8k EOZ 82p, 10.5

-6k EOV 81 straddle w/

-E2V 80 straddle vs.

E2Z 78/81 strangle

+5k EOZ 78/80/81p flys, 2.5

-5k EOM 80/82 3x2p spd w/

-E2M 78/81 3x2p spd, 24.5

-5k EOH 80/82p spds vs. 85/87c spds,7.5

4.75k EOZ 81/83p spds

-4k EOZ 80/85 strangles, 3.5 vs.

+2k EOZ 82 straddles, 18.0

-3k EOX 82 straddles, 14.0

+10k E2Z 86c, 1.0

+5k E2Z 78/83 R/R, 1.5p ovr

4k E2Z 80/81p spds

2.1k E3F 78/81 strangles, 30.0

Tsy options

Blocks:

1207ET

10k FVV 118.2c, 30

1403ET

-16.5k TYX 124.5/126 2x1p spds, 24

Pit/screen:

+5k TYX 128+/129+/130c trees, 2

4k TYX 124+/125+p spds, 15

2k TYX 124/125+p spds,18

2k TYX 124p, 6 vs. 125-31.5

1.5k TYV 125.7/126/126.2/126.7c condors, 3

1.5k TYZ 114/114.5p spd, cab-12

1.5k TYX 126 straddles,114

1k TYV 126 straddles, 29

4k FVZ 115+/116+ 2x1p spds, 2.5

2.15k FVX 117.2p, 6 vs.

500 USX 152p, 35

2k FVV 117/117.7p spds, 2.0 vs.

2.5k TUV 108p, 2.5

2k FVV 118/118.7p spds, 41 vs.

2.3k TUV 108.2p, 17

1.5k FVZ 117.7 straddles, 58

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

[TOPICS: MTABLE,MNUEQ$,M$U$$$,MR$$$$,M$$FI$,MN$FI$]