US TSYS: FLATTENERS BACK IN FORCE, EARLY PENSION REBALANCING

By Bill Sokolis

     CHICAGO (MNI) - 

US TSYS SUMMARY: Rates held mixed into the close, curves hammered to new 10+

year lows w/long end near session highs (2s10s -3.137, 53.245; 5s30s -4.286,

57.748). Equities weak/off lows (emini -11.0, 2658.0), gold soft (XAU -1.06,

1254.59).

- Tsys opened weaker, held narrow range into BOE and ECB policy annc's, little

knock-on effect or reaction to data flurry including wkly claims (-11K to 225K).

Real vol immediately started to evaporate on narrow range trade into ECB Draghi

presser (again, little react).

- US$ reversed early strength into midday, spurred short covering, outright

buying in Tsys, while sources reported pension fund quarter-end rebalancing, MOC

sell imbalance orders building.

- Flow included real$ buying 5s, 7s and 10s, flatteners in 5s30s. Real$ and

insurance portfolio buying long end late, more curve flatteners via 2s and 5s

vs. 30s.

- Swap spds narrowed on light flow: small 2s5s flattener after 3s5s steepener,

prop and bank rate receiving/payer unwinds in 2s-10s in second half.

- TSYS 3PM ET: 2Y 1.811%; 3Y 1.921%; 5Y 2.135%; 7Y 2.264%; 10Y 2.349%; 30Y

2.712%.

US TSY FUTURES CLOSE: Curves continued to pancake in late trade, session and new

10+ year lows at points (2s10s -3.137, 53.245; 5s30s -4.286, 57.748). US$

continues to weaken, adding to support in rates. Current futures levels: 

* Mar Ultra bonds up 23/32 at 168-17 (167-03L/168-21H)

* Mar 30-yr Bond futures up 13/32 at 154-03 (153-04L/154-06H)

* Mar 10-yr futures down 2.5/32 at 124-17 (124-08L/124-21H)

* Mar 5-yr futures down 4.25/32 at 116-13.75 (116-09.25L/116-19H)

* Mar 2-yr futures down 2/32 at 107-04.75 (107-04L/107-07.5H)

US EURODLR FUTURES CLOSE: Trade mixed into the close, Reds-Greens

underperforming. Current White pack (Dec'17-Sep'18):

* Dec'17 +0.000 at 98.382

* Mar'18 -0.010 at 98.235

* Jun'18 -0.005 at 98.085

* Sep'18 -0.010 at 98.005

* Red pack (Dec'18-Sep'19) -0.015-0.025

* Green pack (Dec'19-Sep'20) -0.020-0.010

* Blue pack (Dec'20-Sep'21) -0.010 to +0.005

* Gold pack (Dec'21-Sep'22) +0.005-0.020

US SWAPS: Spds extend flatter in late trade, session lows, with shorts to

intermediates on lows. More recent flow includes small 2s5s flattener after 3s5s

steepener. Note 10yr back to inverted territory as Tsy curve resumes flattening

in a big way. Rather limited swap-flow on day, however, small 2s5s flattener

after 3s5s steepener earlier, prop and bank rate receiving/payer unwinds in

2s-10s in second half. OTC and exchange traded vol lower, but off lows. Latest

spread levels:

* 2Y  -0.94/19.56

* 5Y  -0.94/5.44

* 10Y -0.75/-0.62

* 30Y -0.19/-20.31

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

- Dec 15 Dec Empire Manufacturing Index (19.4, 17.5) 0830ET

- Dec 15 Nov industrial production (0.9%, 0.3%) 0915ET

- Dec 15 Nov capacity utilization (77.0%, 77.2%) 0915ET

- Dec 15 Dec Atlanta Fed inflation (2.0%, --) 1000ET

- Dec 15 Q4 St. Louis Fed Real GDP Nowcast 1100ET

- Dec 15 Q4 NY Fed GDP Nowcast (3.9%, --) 1115ET

- Dec 15 Oct net TICS flows 1600ET

- Dec 15 Oct long term TICS flows 1600ET

Eurodollar/Treasury Option Summary

Eurodollar options, Pit/screen:

* 10,000 Dec 83 puts, cab

* +2,000 Green Mar 77 straddles, 22.0

* -5,000 Jun 77/78 put spds, 0.5

* +2,500 Mar 82/83/85 1x3x2 call flys, 2.0

* -5,000 Jun 80 puts, 4.0

* +5,000 Red Dec18 73/76 put spds, 3.5

* -5,000 Green Dec 77/78/80 put trees w/

* -5,000 Blue Dec 76/77/78 put trees, 21.5 total credit

* -1,000 long Green Dec/long Blue Dec 77 straddle strip, 129.0 total cr

Block, 1120:41, crossed on the bid

* -18,000 short Jan 77 puts, 1.0

* -5,000 Apr 81/82 put spds, 9.5

* -4,000 Mar 82 straddles, 9.5

* -2,500 Feb 82 straddles, 7.0

* +2,500 short Sep75 puts, 7.0 vs. 97.765/0.25%

* 2,500 Red Dec'18 75/77 put spds, 5.0 vs.

* 2,500 Red Mar'19 73/76 put spds, 5.5

Block, 0902:51-0905:24ET,

* total 40,000 short Sep 75 puts, 7.0 vs. 97.77/0.25

* 4,000 Jan 82/83 strangles, 3.25

* 2,000 short Feb 78/Blue Jan 76 straddle spds, 2.0 pre-data

Block, 0741ET

* 5,000 Red Jun'19 55/62 put spds, 0.5 vs. 97.785/0.10%

Tsy options, Pit/screen:

* 3,000 FVH 117 calls, 13/64 vs. 116-13.25

* total 18,000 USG 153 puts (pit/screen on day), from 105-14

* 2,500 TYG 125.5/126 call spds, 5/64 vs. 124-14.5

* -5,000 total iron flys at 42/64:

* total -5,000 TYG 123/124.5 2x1 put spds, 22/64 w/

* total -5,000 TYG 124.5/126 1x2 call spds, 20/64

* 1,200 TYG 123/124.5 2x1 put spds, 22/64 w/

* 1,200 TYG 124.5/126 1x2 call spds, 20/64

* 1,700 TYG 125 calls, 20/64 vs. 124-14

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

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