US TSYS: EQUITY SURGE LATE, TSY STABLE/CURVE BULL FLATTENS

US TSYS SUMMARY: Much calmer finish after carry-over chop/gap-trade following

late Mon's pandemonium when equities cratered/vol index gapped to new highs. VIX

at 29.35 (-7.97) in late trade vs. 50.30 high on open. Equities rebound/broadly

higher late (emini +85; DJIA +535,; NDX +148).

- Limited react to data, StL Fed pres Bullard downplayed inflation pressure in

morning event. Weaker upsized $26B 3Y auction awarded a 2.280% rate (2.080%

previous) w/ bid/cover 3.0 vs. 3.13 previous. Decent corp/supra-sov issuance $7B

3Y, $1.35B 5Y) on day.

- CME vol index VIX surged >50 first time since Aug 2015, aftermath of leveraged

short vol/inverse VIX ETF hedging. Real vol delivered: VIX fell to 22.42 low and

rebounded to >46.0 in 40 minute period, heavy option volume.

- Tsys receded to near steady mid-morning amid ongoing chatter of risk

parity/CTA acct selling (unconfirmed). Sources reported real$ buying in

intermediates, carry-over fast$ selling short end near highs, two-way in 3s

ahead the $26B note auction. Heavy option volume

- Late ylds: 2Y 2.101%, 3Y 2.274%, 5Y 2.523%, 7Y 2.693%, 10Y 2.783%, 30Y 3.055%

US TSY FUTURES CLOSE: Trade mixed into the close, near low end of session range

on very heavy volume (TYH>3.3M). Short end under heavy pressure late. Latest

curve update:

* 2s10s +0.049, 67.790 (71.142H/66.615L);

* 2s30s -2.976, 94.807 (104.783H/94.172L);

* 5s30s -4.012, 52.731 (64.703H/52.415L);

Current futures levels:

* Mar Ultra bonds up 20/32 at 158-30 (158-04L/161-02H)

* Mar 30-yr Bond futures up 8/32 at 145-30 (145-17L/147-23H)

* Mar 10-yr futures up 4/32 at 121-12.5 (121-11.5L/122-19H)

* Mar 5-yr futures down .5/32 at 114-24.75 (114-24.75L/115-21.25H)

* Mar 2-yr futures down 1.5/32 at 106-22 (106-22L/107-00.25H)

US EURODOLLAR FUTURES CLOSE: Also trade mixed, short end under increasing

pressure in late trade. Heavy volume, Red Dec'19 leads w/ >1M contracts. Current

White pack (Mar'18-Dec'18):

* Mar'18 -0.005 at 98.110

* Jun'18 -0.010 at 97.895

* Sep'18 -0.015 at 97.770

* Dec'18 -0.025 at 97.630

* Red pack (Mar'19-Dec'19) -0.025-0.015

* Green pack (Mar'20-Dec'20) -0.015 to +0.005

* Blue pack (Mar'21-Dec'21) +0.005

* Gold pack (Mar'22-Dec'22) +0.005-0.010

US SWAPS: Spds running steady/mixed by the close, spd curve steeper vs. flatter

Tsy curve. Front end tighter on the back of decent issuance in 3s-5s, not to

mention the upsized $26B Tsy note auction. OTV swaption vol higher/off highs as

markets finish on a much more stable tone compared to Mon. Latest spread levels:

* 2Y  -1.50/23.69

* 5Y  +0.00/9.81

* 10Y +1.44/2.75

* 30Y +2.25/-15.25

PIPELINE: $350M Harley-Davidson 5Y launched

Date $MM Issuer/Rating/Desc/Maturity/Yld/Leads; Priced *; Launch #:

02/06 $4B *European Investment Bank (EIB) 3Y MS +2

02/06 $3B *Province of Ontario 3Y MS +15

02/06 $1B *Council of Europe Development Bank (COE) 5Y MS +15

02/06 $350M #Harley-Davidson Fin Services Inc (HOG) 5Y WNG +90s

02/06 $Benchmark Sweden Gvt International Bond (SWED) 3Y, MS flat

02/06 $Benchmark Bank Nederlandse Gemeenten NV (BNG) 3Y, MS +10 area

Chatter, 3M (MMM) A1/AA-

Chatter, Bank of New Zealand (BZLNZ) A1/AA-

Chatter, KeyBank 

Chatter, Fifth Third Bank (FITB) A3/A

Chatter, State Street Corp (STT) A1/A

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

- Feb 07 Dallas Fed pres Kaplan participation moderated Q&A at the Institute for

Monetary and Financial Stability Working Lunch, Frankfurt, Germany, audience

Q&A. 0600ET

- Feb 07 02-Feb MBA Mortgage Applications (-2.6%, --) 0700ET

- Feb 07 NY Fed pres Dudley speaks at "Banking Culture: Still Room for

Improvement?" in New York, with audience Q&A.

- Feb 07 02-Feb crude oil stocks ex. SPR w/w (6.78m bbl, --) 1030ET

- Feb 07 Jan Kansas City Fed LMCI (0.44, --) 1100ET

- Feb 07 Chi Fed Pres Evans on current economic conditions and monetary policy

"Iowa Bankers Assn Bank Management Conference" in Des Moines, Iowa, Q&A. 1115ET

- Feb 07 US Tsy $24B 10Y note auction 1300ET

- Feb 07 Dec consumer credit ($28.0B, $20.0B) 1500ET

- Feb 07 Jan Treasury Allotments (final) 1500ET

- Feb 07 SF Fed Pres Williams "Community Leaders Luncheon" Honolulu, Hawaii,

Q&A. 1730ET

Eurodollar/Treasury Option Summary

Eurodollar options, Pit/screen: 

* +6,000 Mar 82 calls, 1.0 vs. 98.125/0.15%

* -5,000 short Apr 77 calls 1.0 over the short Jun 81 call

* -3,000 Green Feb 72/73 strangles, 9.0

* +5,000 Blue Jun 70puts, 12.5

* +10,000 Apr 71 calls, 0.75

* +10,000 Apr 80/81 call spds, 1.25

* +10,000 Blue Jun 70 puts, 12.5 vs. 97.17/0.36%

* +2,000 Green Jun 70/72 5x3 put spds, 13.5

* -3,000 Blue Mar 72/73 strangles, 16.0

* -7,500 Blue Dec 66/75 call over risk reversals, 1.5 vs. 97.12/0.55%

* +7,500 Blue Dec 66/76 put over risk reversals, 1.0 vs. 97.125/0.50

* +5,000 Mar 82/83 2x3 call spds, 1.25

* +20,000 Mar 82/83 call spds, 0.75

* +15,000 short Dec/Red Dec'19 70/73 put spd strip vs. short Dec/Red Dec'19 77

call strip, 8.5 total debit/package

* Update, total +40,000 Dec 72/73 put spds, 2.0 vs. 97.635/0.10

* -5,000 short Feb 75/76 2x1 put over risk reversals, 2.5

* -5,000 Blue Jun 72 calls, 16.5

* 15,000 Dec 72/73 put spds, 2.0 vs. 97.635/0.10

* 4,250 Blue Feb 71/72/73/75 put condors, 5.0

* 5,500 Mar 71 straddles, 4.75

* +8,000 Sep 75/76 put spds, 1.5 screen, 1.5

* +7,500 Dec 71/72 put spds, 0.5 screen, 0.75

* +20,000 short Mar 77/80 call spds, 2.5 vs/ 97.595/0.10%

0.0 net flattener adds to recent 10k Block

* +10,000 Dec 73/76 put spds, 8.5 vs.

* -10,000 short Dec 70/72 put spds, 8.5,

Blocks, 0857:55ET

* 10,000 short Dec 67/71/75 put flys, 10.0 vs. 97.49/0.25%

* +35,000 Green Apr 70/71 put spds, 3.0

* 10,000 Green Mar 70/71/72 put flys, 2.0

Block post, 0845:39, checking direction

* 10,000 Dec 73/76 put spds, 8.5

* 10,000 short Dec 70/72 put spds, 8.5

* -20,000 Green Jun 72 puts, 13.0 covered, still offered

* +40,000 short Mar 78/80 call spds, 1.0 vs. 97.60

Heavy overnight screen volume, >700k by the open, some highlights

* 20,000 Mar 82/83 put spds

* 10,000 short Mar 72/73/75 put flys

* 10-12,000 each short Dec 71, 73 and 75 puts

* 22,000 short Dec 72 puts

* 20,000 Green Mar 70/71/72 put trees

* 19,000 Green Feb 73 calls and 21,000 Green Feb 75 calls

Tsy options, Pit/screen:

Long-end upside insurance buyer, don't think these will come in play before

spring showers, but you never know:

* +19,000 USJ 166 calls, 2/64, still offered.

* +20,000 FVH 112.5 puts, .5/64 earlier

* over -9,000 TYH 124.5 calls, 3/64 screen (total volume over 20k from 2- to

11/64)

* 3,300 FVH 115.25/FVM 114.5 put spds, 3/64

* 2,000 TYM 121 straddles, 2-20/64

* -1,700 TYH 119.5 puts, 3/64

* -4,000 USM 150 calls, 60- to 62/64

Blocks, 0902ET

* another 7,500 FVJ 115 calls, 17/64 after 7.5k Block at 20/64

Blocks, 0847ET

* 7,500 FVJ 115 calls, 20/64

* 5,000 TYH 123/123.5 call spds, 4/64

* +4,000 TYH 120.5/121 put spds, 9/64

* -5,000 TYJ 119.5 puts, 15/64

--MNI Chicago Bureau; tel: +1 312-431-0089; email: bill.sokolis@marketnews.com

[TOPICS: MTABLE,M$U$$$,M$$FI$,MN$FI$,MN$FX$]