US TSYS: SHORT END TSYS PUNISHED, 2Y YLD TAPS SEP 2008 HIGHS

US TSYS SUMMARY: Well off first half lows by the close, curves hammered w/long

end outperforming (re: rate hike driver weighing on short end, recession-implied

inversion unlikely on strong global eco's. After initial post data sale, futures

have ground back to mildly lower O/N range amid moderate two-way flow, position

squaring ahead extended holiday weekend for U.S. Equities held strong gains

(emini +14.5 2784.0), Gold higher (XAU +16.61, 1338.98), oil firmer (WTI +0.62,

64.42).

- Rates sold off/choppy trade after Dec CPI 0.1% and Retail Sales +0.4% both as

expected. Cross-market note: Tsys ground off lows while Gilts slammed by over 40

ticks in wake of Bloomberg newswire story on Spain and Dutch seeking a soft

Brexit; Bunds higher after ECB Weidmann downplayed rate change risk, trends

in-line. Short end hammered, Mar rate hike chances near 90%, 2Y yld tapped

2.0201%, Sep 2008 highs.

- In addition to better selling, real$ rolling forward, fast$ reversing,

sporadic bids below, scale in flatteners in 5s30s, fast$ doing steepeners.

- Late ylds: 2Y 1.998%, 3Y 2.114%, 5Y 2.345%, 7Y 2.476%, 10Y 2.548%, 30Y 2.853% 

US TSY FUTURES CLOSE: Drifting to top end late session range in long end, curves

hammered. Latest curve update:

* 2s10s -0.975, 54.630 (57.033H/54.263L);

* 2s30s -3.608, 85.056 (89.216H/84.423L);

* 5s30s -3.402, 50.572 (54.634H/50.187L); 

Current futures levels:

* Mar Ultra bonds up 10/64 at 164-14 (163-00L/164-19H)

* Mar 30-yr Bond futures up 3/32 at 150-17 (149-19L/150-19H)

* Mar 10-yr futures down 5.5/32 at 122-30.5 (122-21L/123-02H)

* Mar 5-yr futures down 4.5/32 at 115-17.25 (115-11.75L/115-20.25H)

* Mar 2-yr futures down 1.75/32 at 106-27 (106-25.5L/105-28.25H)

US EURODOLLAR FUTURES CLOSE: Lower after the bell, well off session lows with

moderate short cover action going into extended holiday weekend. Heavy sell

volume in short end w/March still looking like next rate hike (Jan hike chances

3%). Current White pack (Mar'18-Dec'18):

* Mar'18 -0.010 at 98.165

* Jun'18 -0.025 at 97.970

* Sep'18 -0.030 at 97.850

* Dec'18 -0.035 at 97.740

* Red pack (Mar'19-Dec'19) -0.040-0.045

* Green pack (Mar'20-Dec'20) -.045-0.040

* Blue pack (Mar'21-Dec'21) -0.040

* Gold pack (Mar'22-Dec'22) -0.035

US SWAPS: After a tighter start. spds are running steady to mildly wider in the

intermediates, long end outperforming. Levels within a point of where they ended

a week ago despite massive influx of swappable corp/supra-sov supply this week

($69B! vs. $30B est), not to mention Tsy issuance. As usual, late week

high-grade issuance evaporated today, set to resume next week. Session flow

included two-way curve action in shorts to intermediates, 2s5s10s flys/receiving

the belly. Early flow included $300.4k 8Y-9Y-10Y Fly, paying belly, $140mln

payer of 2Y at 2.17375%, $149.1k DV01 10Y-15Y STEEPENER. Overnight repo special

in 10s extended further into fail territory, -2.60%, stemming potential

narrowing. Latest spread levels:

* 2Y  +0.00/19.19

* 5Y  +0.12/4.56

* 10Y +0.06/-0.88

* 30Y +1.12/-19.62

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

- Jan 15 US Mkts closed, observance of Dr. Martin Luther King Jr. Day

- Jan 16 Jan Empire Manufacturing Index (18.0, --), 0830ET

- Jan 16 Jan NY Fed expectations survey, 1100ET

- Jan 16 U.S. to Sell USD45 Bln 4-Week Bills, 1130ET

- Jan 16 U.S. to Sell USD48 Bln 3-Month Bills, 1130ET

- Jan 16 U.S. to Sell USD42 Bln 6-Month Bills, 1130ET

Eurodollar/Treasury Option Summary

Eurodollar options, Pit/screen:

20,000 Jun 76/77/78 put flys, 1.5

Block, 1119:20ET, repeats 50k in pit

* +25,500 EDH 87 calls, 0.25

* -25,500 EDH 82 puts, 10.5

* -50,000 Mar 82 puts, 10.5 vs.

* +50,000 Mar 87 calls, cab. Big tone change from better downside/low-delta put

buyers focus on quarterly rate hikes for 2018 out to 2019

Block, 0919ET,

* +17,000 Apr 77/78/80 2x3x1 put flys, 4.0 bet

* +10,000 short Jun 72/73 put spds, 2.5

* -5,000 Mar 82/83 1x2 call spds, 0.75

* +/-5,700 Blue Jan 75 conversion, 0.0 (Jan options expire today)

* +3,000 Jun 82/85 call spds, 0.75

* -2,500 Mar 82/83/85 call flys, 1.25

* 38,500 short Feb 76 puts, 2.0

* 34,000 Green Mar 73 and 20,000 Green Mar 75 puts, outright and on spd

Block, 0809:30ET, adds to 10k/screen

* 15,000 short Mar 76 puts, 4.0 vs. 97.695/0.35%

Treasury options, Pit/screen:

* 3,300 FVG 115.5 straddles, 2-5/64

* 3,800 TYJ 122 puts, 35/64 vs. 122-16 earlier

* 3,500 TYJ 122 puts, 35/64 vs. 122-16

* 5,128 FVG 115.5 puts, 11/64 vs.

* 2,564 FVH 115/115.25 put strip, 21

* -20,000 FVG 116.25 calls, 0.5/64

* over +5,000 FVH 115.5 straddles 39/64

* +3,000 FVG 115.5 calls, 9.5/64

* +4,000 FVH 115.5 calls, 16/64

* over +4,000 TYH 122.5 straddles, 1-10/64

* -2,000 TYH 123 straddles, 1-8/64

* -2,000 TYH 123 puts, 33/64

* +2,000 TYH 124 calls, 10/64

Recapping large earlier Blocks, 0950:00ET,

* +28,200 TYH 122/122.5 put strip, 46/64 total w/

* 3,187 TYH, 122-26 vs.

* -7,500 TYG 123 puts, 28/64 and

* -22,500 TYG 123.5 puts, 48/64

Earlier Block, 0917:00, appr TYH 122/123 3x2 put spd sale

* 37,170 TYH 122 puts, 16/64

* 20,445 TYH 123 puts, 40/64

* +4,300 TYH 126 calls at 2/64 (ongoing buyer continues to buy low delta calls)

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

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