US TSYS RISK OFF REVERSAL ON 3M STOP-GAP DEBT CEILING EXTESION

By William Sokolis

     CHICAGO (MNI) - 

US TSYS SUMMARY

Tsys broke out of a narrow, mildly mixed range after midday Wednesday as Pres

Trump and Congress agree on stop-gap $7.85B funding for Hurricane Harvey aide

AND 3M debt ceiling ext'n annct!

- Moderate risk on/risk-off unwind followed limit ext'n annc. Tsys made new

session lows, equities gained (emini +6.75, 2466.50); USD gaining vs. Yen; Vol

knocked lower along w/gold (-7.14, 1332.51).

- Tue's 4wk bill yield rise over 2Y note yield has vanished. No real surprise

inversion is gone following stop-gap debt ceiling extension to Dec; general

opinion will invert again in Dec as time gets short. Swaps held wider levels.

- Flow largely two-way in the first half, sporadic consolidation after Tue's

sharp curve flattening safe-haven rally. Geopol tensions re: N Korea steady,

markets reactionary. Specs and fast$ buying in short end early, real$ +10s and

30s, bank portfolio 2-way in long end. Flurry sales by real- and fast$ following

debt ceiling ext'n.

- Decent deal-tied flow after Tue's heavy $18.5B placement.

- TSY 3pm ET: 2Y 1.302%, 3Y 1.410%, 5Y 1.681%, 7Y 1.930%, 10Y 2.101%, 30Y 2.722%

     US TSY FUTURES CLOSE

Tsys finish lower after break out of early narrow/mixed range early in second

half as Pres Trump and Congress agree on stop-gap $7.85B funding for Hurricane

Harvey aide AND a 3M debt ceiling extension announcement. Hit the reset button:

moderate risk on -- or more like risk-off unwind followed debt limit extension

and Harvey aide annc. Tsys made new session lows, equities gained (emini +7.75,

2467.50); USD gaining vs. Yen; Vol knocked lower along w/gold (-5.77, 1333.89).

Current futures levels:

* Dec Ultra bonds down 1-0/32 at 169-08 (168-31L/170-24H)

* Dec 30-yr Bond futures down 19/32 at 156-13 (156-07L/157-12H)

* Dec 10-yr futures down 10/32 at 127-03.5 (127-02L/127-18H)

* Dec 5-yr futures down 5.75/32 at 118-20.5 (118-19.5L/118-28.5H)

* Dec 2-yr futures down 1.25/32 at 108-06.25 (108-06L/108-07.75H)

US EURODLR FUTURES CLOSE

Weaker across the strip, near session lows after the close on decent volume in

front end, Blues- Golds (Sep'20-Jun'22) leading sell-off. Current White pack

(Sep'17-Jun'18):

* Sep'17 +0.000 at 98.682

* Dec'17 -0.005 at 98.585

* Mar'18 -0.015 at 98.540

* Jun'18 -0.025 at 98.490

* Red pack (Sep'18-Jun'19) -0.025-0.040

* Green pack (Sep'19-Jun'20) -0.045

* Blue pack (Sep'20-Jun'21) -0.050-0.055

* Gold pack (Sep'21-Jun'22) -0.055

US SWAPS

Spds hold wider across the curve by the bell, intermediates lagging the wings

slightly. But why with all the corporate supply ($19.6B vs. $18.5B on Tue)?

Because not all of the issuance has been swapped, and secondly, despite the

midday reversal in rates on the stop-gap 3M debt ceiling extension news,

safe-haven/risk-off tone is never far from the front burner, markets still

w/hair trigger to any word of growing tension w/N Korea. Flow on the day did

include deal-tied paying, spds should recede after some issues price, modest

2-way in the intermediates. OTC nd exchange traded option vol receded on the

debt ceiling extension news, trade mixed but with some decent tactical put

buying (not rate hike positioning as chances of a hike before year end remain

low: Sep and Nov 0.0, Dec at 26%, MNI PINCH). Latest spread levels:

* 2Y +0.94/22.69

* 5Y +0.31/7.19

* 10Y +0.62/-4.50

* 30Y +0.88/-34.25

US OUTLOOK

     Data/speaker calendar (prior, estimate):

- Sep 07 02-Sep initial weekly jobless claims (236K, 248K) 0830ET

- Sep 07 Q2 non-farm productivity (f) (0.9%, 1.4%) 0830ET

- Sep 07 Q2 unit labor costs (f) (0.6%, 0.3%) 0830ET

- Sep 07 03-Sep Bloomberg comfort index 0945ET

- Sep 07 Q2 Service Revenue (-1.3%, --) 1000ET

- Sep 07 01-Sep natural gas stocks w/w 1030ET

- Sep 07 01-Sep crude oil stocks ex. SPR w/w (-5.4m bbl, --) 1100ET

- Sep 07 Cleveland Fed Mester: Econ outlk/pol in Pittsburgh Q/A 1215ET

- Sep 07 06-Sep Fed weekly securities holdings 1630ET

- Sep 07 NY Fed Dudley: Eco Outlk/MonPol, Money Mktrs NY Q&A 1900ET

- Sep 07 Atl Fed Bostic: Econ views in Atlanta, GA; Q&A 1900ET

- Sep 07 KC Fed George, Econ Outlk: Omaha, Neb. EcoForum, Q&A 2015ET

Eurodollar/Treasury option summary

     Eurodollar options, 

Pit/screen:

3.75k EDX 85/86/87 1x3x2c flys

2k EDZ 82/83/85p flys

-12k EDZ 82/83/85p flys, 2.0

-10k EDZ 85p, 2.5

+5k EDX 85p, 1.25

+4k EDX/EDZ 85p spds, 1.5

-3k EDZ 85/87/88c flys, 10.0

2k EDH 85/E2H 82c spds, 6.0

+3k EDM'19 80p, 13.0

+22k (pit/screen) EOZ 85/86c spds vs. EOZ 81p, 1.5

14k EOF 77p, 0.5

+10k EOZ 82p, 4.5-5.0

+5k EOZ 80/82p spds, 3.5 vs. 98.385/0.10%

+5k EOF 77p, 0.5

+5k EOZ 85/86/87c trees vs. EOZ 81p, 0.5

-5k EOU 82/83c spds vs. E2U 81/82c spds, 1.0 

4.5k EOH 82p

+4k EOF 83/85 4x5c spds vs.

-24k EOH 76p, 5.0 net

+3k EOH 78/81p spds vs. E2H 76/78p spds, 0.0

+3k EOH 83 straddles, 28.0

+3k EOZ/EOH 83 straddles spds, 9.0

+2.5k EOH 82 straddles, 28.5

+2k EOZ 81/82p spds vs. EOZ 86/87c spds, 1.0

+2k EOZ 81/82p spds, 2.0

2k EOH 82p, 8.5 vs. 98.38/0.33%

9k E2U 82p, 2.0

-6k E2Z 80/83 2x1p spds, 11.5 vs. 98.255

+5k E2U 82/83p spds, 6.5 vs. 98.315/0.50%

+6k E2Z 85/86c spds, 2.0 vs. 98.245/0.10%

+5k E2U 81/82/83c trees, 9.0

+5k E2V/E2Z 82 straddle spds, 10.5

+4k E2U 81/82 2x1p spds, 1.0

1k E2U 81/82/83c trees, 9.0

+5k E3Z 80p vs. EOZ 83p, 2.0

     Tsy options

>30k TYV 128.7c, 7

-6k TYZ 126+p, 38 vs. 127-12

5k TYV/TYX 124+/127 strangle spds, 26

4.5k TYV 127+c, 22 vs. 6k TYZ 128c, 45

4k TYX 125.5/127p spds, 28

2.5k TYV/TYZ 126p spds, 25

2k TYV 126/127.2 1x2c spds, 45

2k TYV 126/127.2 1x2c spds, 45 vs. 127-12/0.85%

2k TYV 128/128.7 1x2c spds, 1

1k TYZ 125p, 20

1k TYZ 125+/126+p spds, 18

1.5k wk3 TY 128.7c, 2

-2.5k USX 161c, 45

1k USZ straddles, 445-446

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

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