US TSYS: RISK-OFF STRIKES BACK, FALTERS AFTER WEAK 10Y AUCTION

US TSY SUMMARY: Tsys bid all session, dovish CB moves (New Zealand, India,

Thailand) helped kick the rally off ahead NY open, US/China trade angst

continued to spur risk-off support. Some chatter that China fully expects to see

10% tariff increase on Sept 1 deadline as they are unwilling to purchase US ag

products and/or make other significant concessions. 10YY making new three year

low (1.5931), support continues to wane since weak 10Y auction that tailed

1.5bps. Yld curves mixed after making new 12Y lows in short end. 

- Flatteners/steepener unwinds resumed, one 2s5s steepener took stab at buying

lows. Huge option volume, call insurance buy >200k Aug 82 calls (0.25-0.5) in

event of off-meeting emergency rate cut. Swap spds collapsed/extending inversion

across curve w/2Y making new all-time lows. Flow included decent deal-tied rate

locks, fast$ payer unwinds in shorts to intermediates. 

- Latest US Tsy $27B 10Y note auction (912828YB0) tailed: awarded 1.670% rate

(2.064% in July; 3.080% avg) vs. 1.655% WI; 2.20 bid/cover (2.41 previous). 

- The 2-Yr yield is up 0.2bps at 1.5848%, 5-Yr is up 0.6bps at 1.5194%, 10-Yr is

up 0.3bps at 1.7055%, and 30-Yr is down 0.4bps at 2.2289%.

US TSY FUTURES CLOSE: Bid all session w/10YY making new three year low (1.5931),

support continues to wane since weak 10Y auction that tailed 1.5bps. Yld curves

mixed after making new 12Y lows in short end. Update:

* 3M10Y  +1.456, -31.88 (L: -41.429 / H: -31.543)

* 2Y10Y  +0.168, 11.69 (L: 7.081 / H: 12.39)

* 2Y30Y  -0.631, 63.759 (L: 58.725 / H: 65.825)

* 5Y30Y  -1.456, 70.377 (L: 67.007 / H: 72.53)

Current futures levels:

* Sep 2-Yr futures up 1.875/32 at 107-25.625 (L: 107-24.75 / H: 107-30.5)

* Sep 5-Yr futures up 5/32 at 119-4.5 (L: 119-02.25 / H: 119-19.25)

* Sep 10-Yr futures up 9.5/32 at 130-2 (L: 129-30 / H: 130-27.5)

* Sep 30-Yr futures up 27/32 at 161-27 (L: 161-19 / H: 163-31)

* Sep Ultra futures up 1-24/32 at 188-05 (L: 187-11 / H: 191-15)

US EURODLR FUTURES CLOSE: Following Tsys lead, Eurodollar futures bid after the

bell but well off midday highs. Heavy volume as short end resumes pricing in

more aggressive rate cuts by year end, 50bp at Sep meeting around 40% (CME

model). Current White pack (Sep 19-Jun 20): 

* Sep 19 +0.045 at 98.030

* Dec 19 +0.055 at 98.225

* Mar 20 +0.060 at 98.480

* Jun 20 +0.050 at 98.595

* Red Pack (Sep 20-Jun 21) +0.045 to +0.055

* Green Pack (Sep 21-Jun 22) +0.060 to +0.060

* Blue Pack (Sep 22-Jun 23) +0.060 to +0.060

* Gold Pack (Sep 23-Jun 24) +0.055 to +0.060

US DOLLAR LIBOR: Latest settles

* O/N +0.0023 at 2.0994% (-0.0049/wk)

* 1 Month -0.0015 to 2.2113% (-0.0173/wk)

* 3 Month -0.0025 to 2.1845% (-0.0548/wk)

* 6 Month -0.0035 to 2.0476% (-0.0853/wk)

* 1 Year -0.0141 at 1.9770% (-0.1358/wk)

US SWAPS: Spds continued to extend inversion, 2Y at new all-time low, in-line

w/decline in Tsy ylds, spds did not bounce even as rates pared gains after weak

10Y auction. Flow included decent deal-tied rate locks, fast$ payer unwinds in

shorts to intermediates. Latest spd levels (Net change/Mid lvl):

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

Wed 1500    -2.69/-2.62    -2.50/-7.81   -2.62/-12.62   -2.50/-41.25

1330        -1.27/-1.21    -2.06/-7.38   -2.10/-12.10   -1.75/-40.50

0900        -1.27/-1.75    -2.06/-7.18   -2.10/-11.43   -1.75/-40.50

Wed Open    -1.27/-2.19    -2.06/-7.73   -2.10/-11.88   -2.10/-40.85

Tue 1500    +0.92/0.20     +2.12/-5.22   +2.25/-9.90    +2.88/-38.97

Tuesday recap: Spds wider by the bell, unwinding appr half Mon's sharp

collapse/inversion extension that leaked back into the short end. Short end

reversed earlier widening, making new all-time inverted low. Decent two-way flow

on net aside from rate locks and pre-auction short sets includes: rate and spd

paying in 2s, 3s, 4s, 5s and 10s earlier, receiving in 3s, 4s, 5s and 7s more

recently, 3s/4s/5s receiver fly in the mix.

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

* Daily Effective Fed Funds Rate: 2.13%, volume: $65B

* Daily Overnight Bank Funding Rate: 2.11%, volume: $175B

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

* Secured Overnight Financing Rate (SOFR): 2.11%, $1.234T

* Broad General Collateral Rate (BGCR): 2.10%, $518B

* Tri-Party General Collateral Rate (TGCR): 2.10%, $493B

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

08-Aug 0830 03-Aug jobless claims (215k, 215k)

08-Aug 1000 Jun wholesale inventories (0.4%, 0.2%)

08-Aug 1000 Jun wholesale sales (0.1%, 0.2%)

08-Aug 1030 02-Aug natural gas stocks w/w

08-Aug 1300 US Tsy $19B 30Y note auction (912810SJ8)

08-Aug 1630 07-Aug Fed weekly securities holdings

PIPELINE: Late pricing

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

08/07 $1.5B *Lloyds Bank 3Y +85

08/07 $750M *AerCap Ireland Capital 5Y +147

08/07 $750M *NiSource 10Y +130

08/07 $300M *Wisconsin Public Service 30Y +112

08/07 $3B #Global Payments 5Y +130a, 10Y +170a, 30Y +210a

08/07 $1B NCR 8NC3, 10NC5

08/07 $Benchmark McDonalds 10Y +115a, 30Y +165a

08/07 $Benchmark BMW Finance 3Y +75, 3Y FRN L+79, 5Y +90, 10Y +115

Eurodollar/Tsy options:

Eurodollar options, Pit/screen: 

* +30,000 Sep 76 puts, 0.5

* +20,000 Dec 85 calls, 8.0

Blocks, 1121:11ET, ongoing buying, pit/screen cross volume near 200,000

* +17,118 Aug 82 calls, 0.5 vs. 98.04. Could be outright insurance buy in event

of emergency rate cut -- OR covering a large short w/ open interest in the call

over 625,000 (in event of emergency rate cut). Hail Mary or proactive unwind,

doesn't matter which.

Blocks, 1103-1104ET, adds to earlier buys >70,000

* +100,000 total Aug 82 calls, 0.5 looking to hedge potential for off meeting

emergency rate cut

* over +50,000 Sep 82 calls, 0.25-0.5 on screen/in pit, adds to 10k Block

* +20,000 Jun 83 calls 42.5 vs. 97.675/0.60%

Blocks,

1033:15ET Post, adds to another 50,000 bought in pit/on screen

* 10,000 Aug 82 calls, 0.5 -- looking to hedge potential for off meeting

emergency rate cut

1016:43 post

* total 33,000 Green Mar 77 calls, 101.5 vs.

* 19,875 Green Mar 86 calls, 31.5 and

* 29,625 Green Mar 87 calls, 25.0

1016:42ET repeats 0837:03ET block: 23.0 net on ratio package, call spd over

* 75,000 Mar 80 puts, 3.0 vs.

* 50,000 Mar 85 calls, 21.5 vs.

* 62,500 Mar 88 calls, 9.0 vs.

* 18,500 EDH0 98.51

* Aside from earlier Block buy, hear a global macro +100,000 short Dec 80/82 put

spds at 2.5, appr $6.2M premium to fade the current risk-off rally in rates.

Implieds continue to chop higher as underlying extends session highs

* +12,000 Oct/Dec 81 call spds, 3.25

* 11,000 short Dec 80/82 put spds, 2.5

* 10,000 Dec 83/87 call spds, 9.0

* +4,000 Red Dec'20 85/90 put over risk reversals, 0.0 vs. 98.72/0.76%

* Update, -30,000 Oct 81/Dec 82 call spds, 3.0 vs. 98.245

Block, 0840:45ET, adds to 21k pit trade

* 10,000 short Dec 85/87/88 broken call trees, 1.0 net/2-legs over

* 21,000 short Dec 85/87/88 broken call trees, 1.0 net/2-legs over

Block, 0837:03ET, 23.0 net on ratio package, call spd over

* 75,000 Mar 80 puts, 3.0 vs.

* 50,000 Mar 85 calls, 21.5 vs.

* 62,500 Mar 88 calls, 9.0 vs.

* 18,500 EDH0 98.51

Block, 0809:02ET,

* +10,000 short Dec 80/82 put spds, 2.5

Block, 0719ET,

* +8,000 Dec 76 puts, .75

Block, 0701:35ET, adds to 60k block vs. 20k Sep 82 calls

* +120,000 Sep 83 calls, 0.5 vs. 98.005/0.05%

Block, 0656:51ET, ongoing +90k Blocked early Tue for 1.25

* +60,000 Oct 86/87 call spds, 1.0

Block, 0654:20ET, ongoing +90k Blocked early Tue for 3.25

* +40,000 Oct 83/85 call spds, 3.0 vs. 98.20/0.11%

Block, 0607:18ET

* +16,000 Green Mar 77/85 1x2 call spds, 28.0 vs. 98.70/0.28%

Overnight crosses

* +5,000 Mar 82/85 call spds 15.0 over -7,500 Mar 80 puts

* +20,000 Sep 82/83 1x3 call spds, 0.0

Tsy options:

* +1,200 TYV 131 straddles, 2-01 to 2-02/64

* +1,500 TYU 129/129.75 5x4 put spds 38/64

* +6,000 USU 161/161.5 put spds, 30/64 vs. 161-27

* +3,000 TYU 128.5 puts, 3/6

Block, 0827:23ET,

* 8,966 TYU 130 calls, 51/64

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

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