US TSYS: GEOPOL RISK TAKES EXIT RAMP, FOR NOW

US TSY SUMMARY: Tsys were settling in around late session lows until last few

minutes amid reports of explosions hitting Baghdad's Green Zone. Tsys moving off

lows w/Gold, equities trim gains. Most action/heavy volume occurred late Tue:

sharp risk-off/safe-haven bid on retaliatory missiles launched by Iran against

two US airbases in Iraq. Strikes on US air bases miraculously resulted in zero

casualties, 10YY fell to 1.7065% low on early overnight action, support

evaporated steadily on heavy volumes, TYH>2.8M by the close.

- Risk-on gained momentum in the minutes after Pres Trump address. Note: Tsy

futures all the way back to levels just prior to US strike that killed Iranian

Gen Soleimani; equities climbing higher (ESH0 +25.5). Another weak Tsy auction:

second consecutive tail as US Tsy $24B 10Y note auction/re-open (912828YS3)

awarded 1.869% rate (1.842% last month) vs. 1.852% WI; 2.45 bid/cover (2.43

previous). Indirects drew 55.19% vs. 56.12%, directs 16.11% vs. 19.35%, and

28.70% for dealers vs. 24.53% prior.

- The 2-Yr yield is up 3.4bps at 1.5745%, 5-Yr is up 4.4bps at 1.6564%, 10-Yr is

up 4.9bps at 1.8668%, and 30-Yr is up 4.8bps at 2.353%.

TECHNICALS:

US 10YR FUTURE TECHS: (H0) Volatile  

*RES 4: 131.00   Round number resistance 

*RES 3: 130-28+ High Oct 11   

*RES 2: 130-17+ High Nov 1

*RES 1: 130-06   Intraday high

*PRICE: 129-07+ @ 16:05 GMT, Jan 8

*SUP 1: 129-04+ Low Jan 7

*SUP 2: 128-20   Low Jan 3

*SUP 3: 127-29   Low Dec 13 and bear trigger

*SUP 4: 130-28+ High Oct 11 

10yr futures futures rallied earlier today to a high of 130-06 before retracing

the entire rally. Despite this volatile price action, the near-term outlook

remains bullish. Futures have recently breached 129-14, Dec 12 high and

overnight did probe resistance at 130-04+, Dec 3 high. Potential is seen for a

retest of 130-06, now seen as the trigger for a resumption of strength. A break

would open 130-17+, Nov 1 high. Initial support has been defined at 129-04+.

TSY FUTURES CLOSE: *** Tsys were settling in around late session lows until last

few minutes amid reports of explosions hitting Baghdad's Green Zone. Tsys moving

off lows w/Gold, equities trim gains. Update:

* 3M10Y  +4.705, 31.6 (L: 16.383 / H: 33.61)

* 2Y10Y  +0.867, 28.199 (L: 24.316 / H: 29.199)

* 2Y30Y  +0.883, 76.956 (L: 73.828 / H: 77.917)

* 5Y30Y  +0.099, 69.226 (L: 67.816 / H: 70.586); Current futures levels:

* Mar 2-Yr futures down 1.75/32  at 107-23.625 (L: 107-22.75 / H: 107-31.625)

* Mar 5-Yr futures down 4.5/32  at 118-25 (L: 118-21.75 / H: 119-16.75)

* Mar 10-Yr futures down 8/32  at 128-29 (L: 128-23.5 / H: 130-06)

* Mar 30-Yr futures down 24/32  at 156-21 (L: 156-09 / H: 159-19)

* Mar Ultra futures down 41/32  at 182-22 (L: 182-00 / H: 187-19)

US EURODLR FUTURES CLOSE: Weaker across the strip but little off low end of

exceptionally wide range -- most of the action on overnight risk-off then

gradual unwind through NY session, recent reports of explosions in or near

Baghdad Green Zone-- boosting Tsys and Gold off late lows. Current White pack

(Mar'20-Dec'20):

* Mar 20 -0.010 at 98.270

* Jun 20 -0.015 at 98.340

* Sep 20 -0.025 at 98.405

* Dec 20 -0.040 at 98.415

* Red Pack (Mar 21-Dec 21) -0.04 to -0.035

* Green Pack (Mar 22-Dec 22) -0.04 to -0.035

* Blue Pack (Mar 23-Dec 23) -0.04 to -0.035

* Gold Pack (Mar 24-Dec 24) -0.04 to -0.035

US DOLLAR LIBOR: Latest settles

* O/N +0.0046 at 1.5325% (-0.0042/week)

* 1 Month -0.0219 to 1.6771% (-0.0371/wk)

* 3 Month -0.0440 to 1.8340% (-0.0398/wk)

* 6 Month -0.0061 to 1.8744% (-0.0184/wk)

* 1 Year -0.0034 to 1.9511% (-0.0130/wk)

US SWAPS: Much more sedate session for spds, mildly tighter on narrow range all

day, some modest deal-tied hedging. Specs have squared up after spds narrowed

since beginning of new year, plying sidelines amid underlying geopol and

upcoming data risk. Current levels:

Time (ET)   2Y Swap/Mid    5Y Swap/Mid   10Y Swap/Mid   30Y Swap/Mid

Wed 1500    -0.44/+6.50    -0.06/-0.12   -0.06/-5.56    -0.12/-34.38

1345        -0.44/+6.50    -0.25/-0.31   -0.12/-5.62    -0.12/-34.38

1200        -0.44/+6.50    -0.31/-0.38   -0.19/-5.69    -0.12/-34.38

1045        -0.38/+6.56    -0.44/-0.50   -0.12/-5.62    -0.12/-34.38

0915        -0.12/+6.88    -0.06/-0.12   -0.12/-5.62    +0.00/-34.25

Wed Open    +0.25/+7.19    -0.06/-0.12   +0.06/-5.44    -0.25/-34.50

Wed 0715    +0.31/+7.25    -0.06/-0.12   +0.00/-5.50    +0.00/-34.25

Tue 1500    +0.88/+7.31    +0.38/-0.12   +0.44/-5.56    +0.38/-34.12

STIR: Federal Reserve Bank of New York EFFR for prior session:

* Daily Effective Fed Funds Rate: 1.55%, volume: $80B

* Daily Overnight Bank Funding Rate: 1.54%, volume: $182B

US TSYS: REPO REFERENCE RATES: (rate, volume),

* Secured Overnight Financing Rate (SOFR): 1.56%, $1.028T

* Broad General Collateral Rate (BGCR): 1.53%, $379B

* Tri-Party General Collateral Rate (TGCR): 1.53%, $356B

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

09-Jan 0800 Fed VC Clarida, Cncl on Foreign Relations, NY, text/Q&A: tba

09-Jan 0830 04-Jan jobless claims (222k, 220k)

09-Jan 1130 NY Fed pres Williams, inflation targeting workshop, BoE

09-Jan 1030 03-Jan natural gas stocks w/w

09-Jan 1300 US Tsy $16B 30Y Bond (912810SK5) re-open auction

09-Jan 1320 Chi Fed Pres Evans, Eco-Forecast, Milwaukee, Wi, Q&A

09-Jan 1400 StL Fed pres Bullard, Wisconsin bankers Assn, Q&A

09-Jan 1630 08-Jan Fed weekly securities holdings

PIPELINE: World Bank and NWB priced recently, still waiting on Israel

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

01/08 $3.5B *World Bank 5Y +8

01/08 $2B *NWB (Nederlandse Waterschapsbank) 5Y +16 (upsized from $1.5B) 

01/08 $3B #State of Israel $1B 10Y +68, $2B 30Y +115

01/08 $1.5B #Georgia Power $700M 3.5Y +50, $300M 10Y tap +95, $500M 30Y +135

01/08 $1.5B #Aker BP $500M 5Y ++140, $1B 10Y +190

01/08 $1.25B #Coca-Cola 10Y +100

01/08 $1.25B #Credit Agricole 10Y +145

On tap for second half of week:

01/09 $Benchmark IADB 5Y

01/08 Nomura investor call

01/?? Additional chatter: Boeing, Heineken, T-Mobile

-

$17.85B Priced Tuesday, $45.5B for week already

01/07 $2.25B *Bank of Nova Scotia $1B 3Y +43, $1.25B 5Y +62

01/07 $4B *EIB 5Y +9

01/07 $2B *Codelco $1B each: 10Y +135, 30Y +165

01/07 $2B *Standard Chartered 6NC5 fix/FRN +120

01/07 $1.75B *American Honda Fnc $850M 3Y +40, $400M 3Y FRN +37, $500M 7Y +63

01/07 $1.5B *American Tower $750M each: 5Y +80, 10Y +112.5

01/07 $1.4B *Air Lease $750M 5Y +90, $650M 10Y +142

01/07 $750M *Santander Chile 5Y +108

01/07 $750M *Kommunalbanken 2Y L+8

01/07 $600M *Public Service Electric & Gas $300M each: 10Y +65, 30Y +85

01/07 $500M *Autodesk WNG 10Y +105

01/07 $350M *Eversource 30Y +115

OPTIONS: Revisiting salient OTM VIX option trade: likely account dubbed 50-cent

a couple years ago (account w/penchant for building large OTM position in calls

w/premium at or below .50 that won big when the vol index surged over a few days

allowing the account to sell out and/or hedge the then ITM calls before the

index receded again). After buying +75,000 Feb 25 calls, .40-.50 earlier,

additional low delta call buys include:

* 11,000 Feb 26 calls, .38 last

* 24,800 Mar 26 calls from .55-.65

* Mar 27 and Apr 28 calls trade small at .50

* 8,300 Apr 47.5 calls trade, .17 last

Eurodollar/Tsy options 

Eurodollar options:

* -6,000 Mar 82/83 strangles, 4.0

* +10,000 Sep 90 calls, 3.0 vs. 98.43/0.10%

* +30,000 Feb 85/87 call spds, 1.5 screen

* +15,000 Sep 82/83 1x2 call spds, 2.5 screen

* +5,000 Mar 82 puts, 3.0 vs. 98.27/0.40%

* Update, 12,500 Jun 85/87 call spds, 3.0 vs. 98.355/0.14%

* +10,000 Mar 81/83 call over risk reversals, 2.0 vs. 98.285/0.25%

* 5,000 short Feb 86/87 call spds, 2.0 vs. 98.505/0.15%

* 7,500 Jun 85/87 call spds, 3.0 vs. 98.355/0.14%

* +5,000 Green Mar 80 puts, 1.0

* Update, 20,000 Sep 82/83 put spds, 6.0

* Update, +10,000 Jun/Sep 82/83 put spd spds, 1.0 adds to 10k Block

re: 20,000 Mar 80 put Block at 2.75 covered, sources say sale not buy

Block, 0847:01ET

* +20,000 Mar 80 puts, 2.75 vs. 98.28/0.43%

* 11,000 Sep 82/83 put spds, 6.0

* +4,000 Jun 81/86 call over risk reversals, 2.25

* 3,500 Apr 81/82/85/86 call condors, 10.0

* 2,000 Mar 78/80/81 put trees, cab

* 2,000 Jun 82/83 strangles, 11.5 vs. Dec 82/83 2x1 put spds1.5

* 3,000 Green Jun 81/82 2x1 put spds, 2.0

* another 2,000 Jun/Sep 82/83 put spd spds, 1.0 addsto 10k Block

Overnight Block recap:

* total -80,000 Red Mar 86/88/90 call trees, 1.0-0.5

* +10,000 Jun/Sep 82/83 put spd spds, 1.0

* -5,000 short Feb 88/90 1x2 call spds, 0.5

Tsy options:

* -10,000 TYG 118.75/119 1x2 call spds, 2.5/64

Implied vol getting crushed as underlying futures come off

* +22,000 TYH 127/128 put spds, 13- to 14/64

* -2,000 TYG 130 calls, 6/64

* -4,000 TYH 128/130.5 strangles, 37/64

* -5,000 TYH 131.5 calls, 10/64 adding to some 14,800 on screen mostly from

12-10 (small traded as high as 25/64 on last night's safe haven rally)

* +2,000 TYG 129.5 calls, 21/64

* 2,100 wk3 TY 129/129.25 put spds, 8/64

* 1,050 TYJ 126.5/132.5 strangles, 23/64

Strangle sales since ADP

* -1,600 TYH 127.5/131.5 strangles on screen 21/64

* -7,000 TYG 127.75/130.25 strangles on screen from 12- to 11/64

Some salient overnight flow, Blocks

* Block +20,000 TYH 128.5/130.5 put over risk reversals, 4/64

* Block, -5,000 TYG 130/130.5 3x4 call spds, 7/64

* Block, -5,000 TYG 130/130.5 2x3 call spds, 0.0

* -6,000 TYG 131 calls, 4/64

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

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