US TSYS: NIRP Problem, 2021 FFs Pricing Neg Rates?!

US TSY SUMMARY: A lot of head scratching market moves Thu, Tsys rallied, long

end more than making up for the midweek refunding induced sell-off w/bonds back

to late Monday levels. Short end rallied as well: Fed fund futures covering 2021

surged >100.0, indicative of mkt pricing in negative rates; while equities

remained strong (ESM0 +49.0 late).

- Heavy volumes in FF futures, FFM1-FFQ1 up as much as 0.070 by midday, FFF1

trading near 100k. Dealer's offered opinions move won't last: UBS posits the

rally in FF is a likely dealer or fund stop out of positions vs. bank

portfolios. Decoupling should be short term, however, as "it is exceedingly

difficult to hold rates at those extreme levels for very long."

- Little react to multiple Fed speakers on day; some risk-off buying in minutes

after Senate majority leader McConnell said Senate likely to take up human

rights violation bill against China. (Aside, ECB pres Lagarde comments re: fear

of war and second wave of virus raised some eyebrows). The 2-Yr yield is down

4.4bps at 0.1349%, 5-Yr is down 7.3bps at 0.2991%, 10-Yr is down 7.3bps at

0.6298%, and 30-Yr is down 7.9bps at 1.3145%.

US TSYS/SUPPLY: Recap next week's Tsy bill auction schedule:

DATE     TIME   AMOUNT   SECURITY    (CUSIP)/ANNC

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

11 May  1130ET   $63B    13W Bill     912796TD1

11 May  1130ET   $54B    26W Bill     9127962Z1

11 May  1300ET   $42B    3Y Note      912828ZP8

12 May  1130ET   $65B    42D Bill     912796UA5

12 May  1130ET   $35B   119D Bill     912796TJ8

12 May  1300ET   $32B    10Y Note     912828ZQ6

13 May  1300ET   $22B    30Y Bond     912810SN9

TSY FUTURES CLOSE: Broadly higher, just off late session highs after the bell

with bonds outperforming. In fact, the 30Y has completely reversed Wed's

refunding induced sell-off and are back to late Monday levels (30YY 1.319%). Yld

curves flatter. Update: 

* 3M10Y  -6.305, 52.047 (L: 50.433 / H: 59.606)

* 2Y10Y  -2.777, 49.491 (L: 48.384 / H: 53.157)

* 2Y30Y  -2.969, 118.422 (L: 117.229 / H: 123.46)

* 5Y30Y  -0.018, 102.006 (L: 100.615 / H: 104.532); Current futures levels:

* Jun 2-Yr futures up 3.125/32 at 110-10 (L: 110-06.625 / H: 110-10.25)

* Jun 5-Yr futures up 12.75/32 at 125-24 (L: 125-10.5 / H: 125-25)

* Jun 10-Yr futures up 23/32 at 139-8.5 (L: 138-16 / H: 139-11)

* Jun 30-Yr futures up 2-12/32 at 181-03 (L: 178-22 / H: 181-11)

* Jun Ultra futures up 3-29/32 at 222-21 (L: 218-10 / H: 223-04)

US EURODLR FUTURES CLOSE: Broadly higher after the bell, at/near session highs

with short end lagging. Current White pack levels:

* Jun 20 +0.025 at 99.670

* Sep 20 +0.040 at 99.745

* Dec 20 +0.055 at 99.740

* Mar 21 +0.065 at 99.820

* Red Pack (Jun 21-Mar 22) +0.070 to +0.080

* Green Pack (Jun 22-Mar 23) +0.085 to +0.090

* Blue Pack (Jun 23-Mar 24) +0.085 to +0.090

* Gold Pack (Jun 24-Mar 25) +0.085 to +0.090

FED FUNDS FUTURES: *** It is a striking move! FFF'1 pricing in negative rate for

early 2021 as FFF1 surged 0.020 last few minutes to 100.005 high, heavy volume

over 54k before sector slips back to 99.995. FF Feb'21 through Sep'21 all

trading between 100.00-100.005 on more typical light volumes <5k. Negative rate

insurance anomaly? Widely placed opinion that negative rates still not expected

by trading desks.

FED FUNDS FUTURES: *** TD Securities addressing today's rally in 2021 FF futures

pricing in negative rates (strip still trading +0.045 to +0.060 currently vs.

+0.070 high). TD advising customers to fade the rally as move NOT "justified by

fundamentals as FOMC members have repeatedly stated that they do not expect to

take rates negative." Markets my be experiencing "a repositioning or short

squeeze" much like what happened in oil futures recently serial markets traded

deeply negative. "Even in a more dire economic scenario, the Fed would likely

favor YCC or forward guidance rather than negative rates (which affect money

funds and banks)" TD said, and expect the "Fed to push back against negative

rates in upcoming remarks." TD looks to sell FFN1 at 100.035 (sector had tapped

100.045 earlier, +0.070 on day).

FED FUNDS FUTURES: *** Holding out for negative rates given today's surge in FF

futures covering 2021 sector of curve? No going to happen, UBS strategists say. 

- UBS said "there are 4.7T reasons why negative rates are much more problematic

in the US" as the MMF industries "business model would come under severe strain

if rates were negative." Reworking the MMF industry would be extremely

disruptive" and time consuming. "taking rates negative would mean a tightening

of financial conditions until the market structure evolved to a bank financed

framework."

- UBS posits the rally in FF is a likely dealer or fund stop out of positions

vs. bank portfolios. "Let's say a bank has assets where the interest rate can't

go through 0%. If they have that asset hedged with OIS or a LIBOR swap that can

go through 0%, there is a mismatch if rates go negative." W/some dealers as

counterparty, they hold "significant exposure to negative FF," while unwinds

"can temporarily push futures into negative rates that seem highly unlikely."

Decoupling should be short term, however, as "it is exceedingly difficult to

hold rates at those extreme levels for very long."

US DOLLAR LIBOR: Latest settles

* O/N -0.0015 at 0.0610% (+0.0026/wk)

* 1 Month -0.0236 to 0.1980% (-0.1053/wk)

* 3 Month -0.0130 to 0.4347% (-0.1062/wk)

* 6 Month -0.0064 to 0.6880% (-0.0250/wk)

* 1 Year -0.0154 to 0.7829% (-0.0526/wk)

US SWAPS: Spds running mixed well after the close, short end extending move

tighter as rate locks get lifted following another heavy day of swappable

corporate issuance. The long end, however, only mildly wider after extending

inversion on Wednesday's outsized refunding focus in longer durations that

include 20Y sector -- while bonds more than erase the midweek sell-off today,

bonds all the way back to late Monday levels, 30YY 1.314%. Latest spd levels:

Thu 1600  -1.06/+10.56   -0.25/+2.50    +0.25/-3.50    +0.75/-49.00

1300      -0.38/+11.25   +0.25/+3.00    +0.38/-3.38    +0.50/-49.25

1045      -0.25/+11.38   +0.19/+2.94    +0.25/-3.50    -0.38/-50.12

0915      -0.62/+11.00   -0.38/+2.38    -0.25/-4.00    -0.88/-50.62

Thu Open  -0.38/+11.25   +0.00/+2.75    +0.00/-3.75    -0.88/-50.62

Thu 0630  -0.50/+11.12   +0.00/+2.75    +0.00/-3.75    -1.25/-51.00

Wed 1500  -0.50/+11.56   -1.50/+2.75    -3.00/-3.75    -3.00/-50.00

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

* Daily Effective Fed Funds Rate: 0.05%, volume: $90B

* Daily Overnight Bank Funding Rate: 0.04%, volume: $216B

US TSYS: REPO REFERENCE RATES (rate, volume levels reflect prior session):

* Secured Overnight Financing Rate (SOFR): 0.05%, $1.127T

* Broad General Collateral Rate (BGCR): 0.04%, $473B

* Tri-Party General Collateral Rate (TGCR): 0.04%, $459B

FED: Recap NY Fed operational purchases for Thursday ($8.5B total)

* Tsy 20Y-30Y, $2.500B accepted, $5.711B submitted

* Tsy 4.5Y-7Y, $6.000B accepted, $14.275B submitted

NY Fed operational purchases schedule for Friday ($8B)

* 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8B

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

08-May 0830 Apr nonfarm payrolls (-701k, -21.75M) 

08-May 0830 Apr private payrolls (-713k, -21.70M)

08-May 0830 Apr unemployment rate (4.4%, 16.0%)

08-May 0830 Apr average hourly earnings (0.4%, 0.4%)

08-May 0830 Apr average workweek, all workers (34.2hrs, 33.6hrs)

08-May 1000 Mar wholesale inventories (-1.0%, -1.0%)

08-May 1000 Mar wholesale sales (-0.8%, -3.0%)

08-May 1100 Q2 St. Louis Fed Real GDP Nowcast

08-May 1115 Q2 NY Fed GDP Nowcast

PIPELINE: Chevron launched $8B total 7pt jumbo late

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

05/07 $8B #Chevron $1.2B 3Y +95/$300M 3Y FRN L+90, $2.5B 5Y +125, $1B 7Y +150,

$1.5B 10Y +160, $500M 20Y +165, $1B 30Y +175

05/07 $4B #GM $1B 3Y +525, $2B 5Y +585, $1B 7Y +635

05/07 $4B *IBRD/World Bank 10Y +35

05/07 $1.5B *Citigroup 4NC3 +150

05/07 $1B *HSBC Bank Canada 3Y +72

05/07 $1.25B #Zoetis $750M 10Y +145, $500M 30Y +175

05/07 $1.15B #Newcrest Finance 10Y +325a, 30Y +350a

05/07 $1B *Global Payments, 10Y +230

05/07 $900M #CAF 3Y +220

05/07 $700M #Federal Realty Inv Trust $300M 4Y +265, $400M 10Y +300

05/07 $500M Vulcan Materials 10Y +295

05/07 $500M *Mohawk Ind 10Y +300

05/07 $Benchmark Discovery Inc 10Y +300, 30Y +335

Eurodollar/Tsy options

Eurodollar options

Block, 1600:25ET, * 10,000 short Sep 96/98 risk reversals, 4.5/call over

* -55,000 Sep 97/98 1x2 call spds sold on day from cab up to 1.0

* 5,000 Blue Jun 95/96/97/98 call condors

* appr 5,000 short Jun 93/95/96/97 call condors trading outright after some 15k

sold vs. short Jul 96/97/98 call flys earlier

* 2,000 Dec 95/96 put spds

* +10,000 Jun 100/100.25 call spds, 3.0

* Update +18,300 Dec 98/100.12 call spds, 2.0

* 4,250 Jun 97/98/100.12 call flys, 0.5

* +14,750 short Jul 96/97/98 call flys 4.5 over short Jun 93/95/96/97 call

condors

* 2,500 Sep 98/100 call spds

Overnight trade includes,

* -10,000 Sep 97/98 1x2 call spds, 0.75

* +6,000 Jun 95/96 2x1 put spds, 1.25

* +5,000 Dec 98/100.12 call spds, 2.0

* 2,400 Jun 95/96/97 call trees

Tsy options

* +3,000 FVQ 127 calls, 7/64

* +5,000 TYN 141 calls, 10/64 earlier

Block, 1120:35ET,* 9,413 TYM/TYN 139.5 call spds, 16/64 net

* scale seller some -2,000 TYN 139.5 calls, 25- to 26/64, ongoing theme for some

desks to fade underlying moves via wing sales of late: selling low delta

calls/puts on rallies/sell-offs.

* 1,000 TYN 135/137 put spds after appr 2,250 TYN 137 puts traded 21/64

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

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