US TSYS: Risk-Off Unwound On Early Hopes Of Virus Cure

US TSY SUMMARY: Early rate rally, thin participation compounding mkt react to

worse than expected retail sales (as well as ex-auto and gas numbers), early

volumes limited on thin participation (less than 25k TYM traded in the 10

minutes after data release). 

- Trade tensions between US/China lent to early risk-off bid while "U.S.

Commerce Moves to Block Huawei From Global Chip Suppliers" Bbg.

- Big reversal and spike in volume after by midmorning: Tsys sold off on

headlines that Sorrento Therpeutics claimed to have discovered the antibody that

kills COVID. Sounds too good to be true as Sorrento claims 100% effective

therapeutic that can also be used in lieu of vaccine as a preventive measure.

Equities did rebound off lows at time, some tight stops in Tsys triggered on the

move.

- Some late risk-off unwinds perhaps California virus cases +2.4% to 74,936.

- NY Fed lowers daily avg Tsy sec buys to $6B next wk from $7B this wk

- The 2-Yr yield is up 0.2bps at 0.1491%, 5-Yr is up 0.5bps at 0.3098%, 10-Yr is

up 1.9bps at 0.6412%, and 30-Yr is up 2.7bps at 1.3177%.

TSY FUTURES CLOSE: Weaker across the curve, just off late session lows by the

bell on modest volume (TYM<970k). Yld curves steeper on wide range. Update: 

* 3M10Y  +1.616, 51.844 (L: 45.011 / H: 53.162)

* 2Y10Y  +1.606, 48.886 (L: 45.048 / H: 49.534)

* 2Y30Y  +2.599, 116.796 (L: 111.159 / H: 117.947)

* 5Y30Y  +2.461, 100.886 (L: 96.723 / H: 101.688); Current futures levels:

* Jun 2-Yr futures down 0.125/32 at 110-9 (L: 110-08.5 / H: 110-09.875)

* Jun 5-Yr futures down 1.25/32 at 125-23 (L: 125-21.75 / H: 125-27.25)

* Jun 10-Yr futures down 3/32 at 139-10.5 (L: 139-08 / H: 139-21)

* Jun 30-Yr futures down 23/32 at 180-29 (L: 180-23 / H: 182-15)

* Jun Ultra futures down 31/32 at 223-23 (L: 223-08 / H: 226-23)

US TSYS/SUPPLY: Next week's Tsy bill/note/bond auction schedule below. Note

return of 20Y note on May 20. To give an idea of where yld for sector running,

current WI is 1.080% / 1.055%.

DATE     TIME   AMOUNT   SECURITY    (CUSIP)/ANNC

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

18 May  1130ET   $63B    13W Bill     (912796XF1)

18 May  1130ET   $54B    26W Bill     (9127963A5)

19 May  1130ET   $65B    42D Bill     (912796UB3)

19 May  1130ET   $40B   119D Bill     (9127962G3)

19 May  1300ET   $31B    52W Bill     (9127962Y4)

20 May  1300ET   $20B    20Y Note     (912810SR0)

21 May  1130ET   TBA     4W Bill      19 May Annc

21 May  1130ET   TBA     8W Bill      19 May Annc

21 May  1300ET   $12B 10Y TIPS Reopen (912828Z37)

US TSY FUTURES: Late session roll update, first notice on May 29. Jun futures

expire in mid-late June (10s, 30s and Ultras on 6/19; 2s & 5s 6/30). Percentage

completion remains low.

* TUM/TUU appr 24,400 from -4.88 to -4.62, -4.62 last; <5% complete

* FVM/FVU appr 77,700 from 3.75 to 4.50, 4.5 last; <9% complete

* TYM/TYU appr 22,300 from 7.0 to 7.75, 7.5 last; <6% complete 

* UXYM/UXYU 4,300 from -12.25 to -11.25, -11.25 last; <2% complete

* USM/USU 4,600 from 1-17 to 1-17.5, 1-17 last; <2% complete

* WNM/WNU 7,000 from 1-17.75 to 1-18, 1-18 last; <8% complete

US TSY FUTURES: Tsy futures roll opinions from Societe Generale:

- "Net long positioning" of asset managers "has fallen since the last cycle, and

this, along with a drop in the overall open interest, should result in a weaker

bearish impact on the upcoming calendar rolls."

- Soc Gen concurs the pace of roll "seems subdued in the TU and TY future

contracts, likely the result of the drop in asset managers' net long

positioning." Meanwhile

- "CTDs" from Jun'20 to Sep'20 in 2s-10s, implies "limited curve influence on

the long-end contract calendar rolls."

STIR: Deutsche offers four reasons why negative rate pricing may persist:

- 1) Fed hikes very unlikely for foreseeable future: "market participants

believe that negative rates are significantly more likely, or alternatively

driven by a truncation of the upper end of the distribution if the size and

likelihood of future rate increases declines"

- 2) Negative term premia: Cites Fed research that funds rate term premium

estimates may be non-linear and significantly negative over the medium term. 

- 3) Sub-zero rates seen possible: Fed's survey of primary dealers shows some

belief that lower bound is negative, market possibly pricing Fed following

similar path to other central banks that couldn't meet policy objectives 

- 4) (Similar to 3) The Fed may need to provide more accommodation: whether an

approach of outcome-based forward guidance, yield curve control and traditional

QE (all of which Deutsche expects) will be sufficient in this crisis "remains an

open question", particularly if QE does not have as much "bang for the buck" as

it did in the past - meaning "reduced policy space is likely to leave market

participants anticipating the possibility of negative rates down the road.

US EURODLR FUTURES CLOSE: Largely steady in whites-Reds, moderately weaker out

the strip. Current White pack levels:

* Jun 20 +0.005 at 99.675

* Sep 20 +0.005 at 99.720

* Dec 20 steady at 99.705

* Mar 21 steady at 99.785

* Red Pack (Jun 21-Mar 22) -0.005 to steady

* Green Pack (Jun 22-Mar 23) -0.02 to -0.01

* Blue Pack (Jun 23-Mar 24) -0.035 to -0.025

* Gold Pack (Jun 24-Mar 25) -0.045 to -0.04

US DOLLAR LIBOR: Latest settles

Latest settles

* O/N +0.0005 at 0.0620% (+0.0009/wk)

* 1 Month -0.0097 to 0.1724% (-0.0255/wk)

* 3 Month -0.0051 to 0.3805% (-0.0540/wk)

* 6 Month -0.0064 to 0.6590% (-0.0289/wk)

* 1 Year -0.0064 to 0.7554% (-0.0275/wk)

US SWAPS: Wider for the most part after the bell, limited flows.

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

Fri 1500  -0.25/+10.00   +1.00/+3.75    +1.12/-2.00    +1.00/-47.00

1345      -0.75/+9.50    +1.00/+3.75    +1.12/-2.00    +1.00/-47.00

1230      -0.50/+9.75    +1.12/+3.88    +1.06/-2.06    +1.25/-46.75

1000      -0.50/+9.75    +1.12/+3.88    +1.06/-2.06    +1.25/-46.75

Fri Open  +0.12/+10.38   +0.81/+3.56    +1.19/-2.94    +1.81/-46.19

Thu 1500  +0.25/+10.25   +0.25/+2.75    +0.75/-3.00    +0.25/-48.25

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

* Daily Effective Fed Funds Rate: 0.05%, volume: $92B

* Daily Overnight Bank Funding Rate: 0.05%, volume: $227B

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

* Secured Overnight Financing Rate (SOFR): 0.02%, $1.102T

* Broad General Collateral Rate (BGCR): 0.01%, $459B

* Tri-Party General Collateral Rate (TGCR): 0.01%, $441B

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

* 1010-1030ET: Tsy 2.25Y-4.5Y, appr $7B

-

NY Fed lowers daily avg Tsy sec buys to $6B next wk from $7B this wk

NY Fed operational purchases schedule for Monday ($3.5B)

* 1010-1030ET: Tsy 20Y-30Y, appr $2B

* 1100-1120ET: TIPS 1Y-7.5Y, appr $1.5B

NY Fed operational purchases schedule for Tuesday ($9.5B)

* 0930-0950ET: Tsy 0-2.25Y, appr $9.5B

NY Fed operational purchases schedule for Wednesday ($6.0B)

* 1010-1030ET: Tsy 4.5Y-7Y, appr $4.5B

* 1100-1120ET: TIPS 7.5Y-30Y, appr $1.5B

NY Fed operational purchases schedule for Thursday ($5B)

* 1010-1030ET: Tsy 20Y-30Y, appr $2B

* 1100-1120ET: Tsy 7Y-20Y, appr $3B

NY Fed operational purchases schedule for Friday ($6B)

* 1010-1030ET: Tsy 2.25Y-4.5Y, appr $6B

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

18-May 0830 May NY Fed Business Leaders Index

18-May 1000 May NAHB home builder index (30.0, 30.5)

18-May 1400 Atl Fed Bostic virtual discussion on economy and Covid-19

PIPELINE: Slow finish to wk that saw $64.1B price

05/15 $1.15B #Lockheed $400M 10Y +125, $750M 30Y +155

-

$11.7B Priced Thursday

05/14 $3B *Honeywell $1.25B 5Y +105, $1B 10Y +135, $750M 30Y +155

05/14 $1.75B *Ontario 7Y +65

05/14 $1.7B *Boston Scientific $500M 5Y +160, $1.2B 10Y +205

05/14 $1.5B *JFM (Japan Finance Org for Muni's) 5Y +69

05/14 $1B *NatWest 3Y +230

05/14 $1B *Bank of America WNG fix-FRN 4NC3 covid bond +130

05/14 $600M *PPG Industries $300M each 10Y +200a, 30Y +230

05/14 $650M *Puget Energy 10Y +350

05/14 $500M *Manulife Fncl WNG 7Y +200

Eurodollar/Tsy options

Eurodollar options

* 8,000 short Dec 95/96/100/100.12 call condors, adds to 6k traded Thu

* some 80,000 Dec 92/95/97 call flys, 6.0, appr half of which traded vs. Jul

97/98 call spd

* +3,000 Sep 97/98/100 1x3x2 call flys vs. Sep 95/96 put spds, 0.0 net package

* some 38,000 Dec 92/95/97 call flys 3.5 over the Jul 97/98 call spdvs. 99.715,

fly legs adds to earlier +30k at 6.0

Block, 0807:24ET 20,000 Green Aug 93/95/96/97 call condors, 2.5

* 30,000 Dec 92/95/97 call flys, 6.0 vs. 99.715/0.25%

* 15,000 Jul 91 puts, cab

* 6,800 Jul 97/98 call spds

* 5,000 Sep 97/98/100 call flys

* 1,100 Jun 91/92/93/95 put condors

Tsy options:

* Update, total +17,300 TYN 132 puts, 2/64

* -2,000 FVM 125.5 calls, 17/64

Volume updates on smaller scale trade

* 4,200 TYU 136.5 puts, 24/64 last

* 2,000 FVM 119 puts

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

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