US TSYS: STRONG START TO 2020 FOR EQUITIES AND RATES

US TSY SUMMARY: Strong start in rates and equities for 2020. Potential for

"preemptive strike" vs. Iranian militia headlines (US Defense Sec. Esper)

apparently lent to  risk-off/haven bid in Tsys, equities had a choppy session

but look to extend new high in late trade (ESH0 +20 at 3251.0). Volumes much

improved (TYH>1.1m) vs. prior holiday levels. Yld curves continue to bull

flatten.

- Sources reported central bank sales in short end, two-way in intermediates to

long end w/bank buying long end last couple hours. Block buy Eurodlr Greens

- Swap spds collapsed earlier, appears Dec move a little overdone. After hitting

widest levels in 7 months Tuesday (and making move over 3 week period: from near

inversion on Dec 10 to nearly +12.0 Tues), spd curve steepening as Tsy

yld curves bull flatten. Surge in swap-tied flow underscore move w/better rate

receiving in 2s, 3s, 4s, 5s and 7s, 2s10s steepener, 3s4s5s receiver fly. Dearth

of deal-tied flow so far.

- The 2-Yr yield is up 0.2bps at 1.571%, 5-Yr is down 2.8bps at 1.6632%, 10-Yr

is down 4.2bps at 1.8754%, and 30-Yr is down 5.7bps at 2.3326%.

TECHNICALS

US 10YR FUTURE TECHS: (H0) Erratic Rally Fails to Hold 

*RES 4: 130-04+ High Dec 3

*RES 3: 129-14   High Dec 12 and near-term bull trigger

*RES 2: 129-02   High Dec 13

*RES 1: 128-29+   High Jan 02

*PRICE: 128-23+ @ 16:21 GMT, Jan 2

*SUP 1: 127-29   Low Dec 13 and bear trigger

*SUP 2: 127-18+ 1.618 projection of the Oct 3 to Nov 7 low from Dec 3 high

*SUP 3: 127-00   Round number support

*SUP 4: 126-31+ 1.764 projection of the Oct 3 to Nov 7 low from Dec 3 high

After a choppy morning, US 10yr futures rallied well into the close, printing up

at 128-29+ before fading slightly. Nonetheless, the rally at present looks to

erratic to hold, and bulls will need to break and close above the 129-14 mark to

indicate further progress. As such, the outlook is unchanged and remains bearish

with attention on the 127-29 key support. A breach would confirm a resumption of

the broader down move and maintain the bearish price sequence of lower lows and

lower highs. This would open 127-18+, a Fibonacci projection and the 127-00

level. 

     AUSSIE 10-YR TECHS: (H0) Little Respite 

*RES 3: 98.8950 - High Dec 10 and 11

*RES 2: 98.8500 - High Dec 18

*RES 1: 98.8209 - 50-DMA 

*PRICE: 98.7050 @ 16:17 GMT, Jan 02

*SUP 1: 98.5900 - Intraday low 

*SUP 2: 98.5348 - 1.236 projection of Dec 5 - Dec 13 decline from Dec 18 high

*SUP 3: 98.4976 - 1.382 projection of Dec 5 - Dec 13 decline from Dec 18 high

Aussie 10yr futures bounced in the first trading day of 2020, but bulls will get

little respite as the outlook remains weak. After former support at 98.6500 (the

Dec 24 and 30 lows) was cleared, this confirmed a resumption of the current

bearish cycle that has been in place since Nov 28. The focus is on a move

towards 98.5348 and 98.4976 next, both Fibonacci projection levels. Firm

short-term resistance has been defined at the 50-dma at 98.8209. 

     JGB TECHS: (H0): Has Stabilized

*RES 3: 153.55 - High Nov 28 and key resistance

*RES 2: 153.11 - High Dec 4

*RES 1: 152.50 - High Dec 9

*PRICE: 152.13 @ 19:48 GMT, Dec 30

*SUP 1: 151.62 - Contract lows, Dec 20

*SUP 2: 151.11 - 76.4% retracement of August 2018 - September 2019 Rally

*SUP 3: 150.51 - 1.0% lower 10-dma envelope

JGB futures are consolidating following the recent recovery off the Dec 23 low

of 151.62. The underlying trend remains bearish and the focus is on an eventual

break of 151.62 to open 151.48 and 151.18, 0.764 and 1.00 Fibonacci projection

levels of the decline between Dec 4 - Dec 10 from the Dec 11 high, ahead of the

151.11 Fibonacci retracement level. A break below the latter would open the 1.0%

lower 10-dma envelope at 150.51. Resistance is at 152.50.

TSY FUTURES CLOSE: Stronger by the closing bell but off midmorning highs --

trading sideways in a narrow channel since noon. Tsy yld curves bull flattening,

paring Tuesday's move to 1+ year highs. Update:

* 3M10Y  -1.550, 34.812 (L: 30.298 / H: 37.736)

* 2Y10Y  -3.854, 30.588 (L: 29.788 / H: 35.746)

* 2Y30Y  -5.256, 76.401 (L: 76.165 / H: 83.104)

* 5Y30Y  -2.809, 66.888 (L: 66.852 / H: 70.59)

Current futures levels:

* Mar 2-Yr futures down 0.625/32  at 107-23.375 (L: 107-22.375 / H: 107-25.125)

* Mar 5-Yr futures up 2/32  at 118-21.5 (L: 118-14.75 / H: 118-27.25)

* Mar 10-Yr futures up 7.5/32  at 128-21 (L: 128-05 / H: 128-29.5)

* Mar 30-Yr futures up 23/32  at 156-20 (L: 155-05 / H: 157-04)

* Mar Ultra futures up 1-11/32  at 183-0 (L: 180-13 / H: 183-26)

US EURODLR FUTURES CLOSE: Steady in short end to moderately higher out the

strip, Blues-Golds outperforming while Greens saw continued block buying

earlier. Current White pack (Mar'20-Dec'20):

* Mar 20 steady at 98.265

* Jun 20 +0.010 at 98.320

* Sep 20 +0.005 at 98.370

* Dec 20 +0.005 at 98.385

* Red Pack (Mar 21-Dec 21) +0.005 to +0.010

* Green Pack (Mar 22-Dec 22) +0.020 to +0.030

* Blue Pack (Mar 23-Dec 23) +0.030 to +0.040

* Gold Pack (Mar 24-Dec 24) +0.040 to +0.045

US DOLLAR LIBOR: Latest settles

* O/N -0.0021 at 1.5405% (+0.0043/week)

* 1 Month -0.0281 to 1.7344% (-0.0650/wk)

* 3 Month -0.0082 to 1.9002% (-0.0444/wk)

* 6 Month -0.0026 to 1.9095% (-0.0112/wk)

* 1 Year -0.0015 to 1.9948% (-0.0095/wk)

US SWAPS: Spds collapsed into midday -- appears spd moves off lows in December

were a little overdone. After hitting widest levels in 7 months Tuesday (and

making move over 3 week period: from near inversion on Dec 10 to nearly +12.0

Tues), spd curve steepening as Tsy yld curves bull flatten. Surge in swap-tied

flow underscore move w/better rate receiving in 2s, 3s, 4s, 5s and 7s, 2s10s

steepener, 3s4s5s receiver fly. Dearth of deal-tied flow so far. Current spd

levels:

Thu 1500    -2.38/+10.06   -1.44/+2.31   -0.69/-3.19    -0.62/-30.50

1315        -2.94/+9.50    -1.44/+2.31   -0.81/-3.31    -1.00/-30.88

1145        -2.81/+9.62    -1.44/+2.31   -1.00/-3.50    -1.31/-31.19

1015        -2.00/+10.44   -0.94/+2.81   -0.69/-3.19    -1.06/-30.94

0900        -1.31/+11.12   -0.81/+2.94   -0.56/-3.06    -1.00/-30.88

Thu Open    -0.81/+11.62   -0.25/+3.50   -0.38/-2.88    -0.62/-30.50

Tue 1130    +0.90/+11.75   +0.62/+3.25   +0.38/-2.88    +0.12/-29.38

Tue Open    +0.84/+11.69   +0.38/+3.00   +0.25/-3.00    +0.00/-29.50

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

* Daily Effective Fed Funds Rate: 1.55%, volume: $51B

* Daily Overnight Bank Funding Rate: 1.55%, volume: $99B

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

* Secured Overnight Financing Rate (SOFR): 1.55%, $1.010T

* Broad General Collateral Rate (BGCR): 1.55%, $341B

* Tri-Party General Collateral Rate (TGCR): 1.55%, $329B

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

03-Jan  -   Dec NA-made light vehicle sales SAAR (17.09m, 17.0m)

03-Jan 1000 Nov construction spending (-0.8%, 0.4%)

03-Jan 1000 Dec ISM Manufacturing Index (48.1, 49.0)

03-Jan 1000 Dec ISM New Orders (47.2, --)

03-Jan 1000 Dec ISM Prices Paid (46.7, 47.5)

03-Jan 1030 27-Dec natural gas stocks w/w

03-Jan 1100 27-Dec crude oil stocks ex. SPR w/w

03-Jan 1100 Q1 St. Louis Fed Real GDP Nowcast

03-Jan 1105 Richmond Fed Pres Barkin, Maryland Bankers Assn eco outlook, Q&A

03-Jan 1115 Q1 NY Fed GDP Nowcast (1.32%, --)

03-Jan 1315 Chi Fed Pres Evans, American Economic Assn Annual meet, San Diego

03-Jan 1400 Dec FOMC minutes

03-Jan 1530 Dallas Fed Pres Kaplan, Allied Social Science Assn meet, San Diego

PIPELINE: No new issuance expected for shortened week. Recapping total

high-grade corporate, supra-sovereign issuance for the year: $1.156 trillion!

* Dec $21.07B

* Nov $114B

* Oct $101B

* Sep $171.45B ($7B Apple, $7B Disney and $5B PayPal jumbo highlights)

* Aug $88.725

* Jul $105.89

* Jun $41.9B

* May $106.35

* Apr $71.5

* Mar $116.52B

* Feb $104.25B

* Jan $114.25B

Eurodollar/Tsy options 

Eurodollar options:

* +/-9,000 Green Mar 86/88 call spds, 4.0

* 10,000 short Apr 88/92 call spds on screen, 1.5

* +2,000 Mar 80 calls vs. -7,000 Mar 82/86 call spds, 27.0 net package

* +3,000 short Mar 86/Green Mar 85 call spds, 3.5/Greens over

* +2,500 Feb/Mar 82/83 call spd spd, 0.25/march over

* Update, total +14,000 May 86/88 call spds, 1.0

* -4,000 Green Feb 81/86 strangles, 4.5

* +15,000 Jun 77/81 2x1 put spds, 0.5 and still bid on screen

* +15,000 Jun 87/90 2x3 call spds, 1.0

* +5,000 Apr 86/88 call spds, 0.75

* +2,500 May 82/83/86 call flys, 2.25

* -5,000 short Jun 82 puts, 6.5

* 2,000 Apr 82/83/85 iron flys, 9.5

Modest overnight volume around 75k, highlight trade ahead the bell includes

* >+11,000 Green Mar 80/82 2x1 put spds, 4.0

* -2,000 Green Mar 87/90 call spds, 1.5

* >4,000 Mar 81 puts, 0.5

* >5,000 Mar 80 puts, cab

* +2,000 Jun 87/90 call spds, 0.75

Tsy options:

* >9,600 TYG 129.25 calls, 20/64 on screen

* 2,500 TYG 127.5 puts, 9/64 vs. 128-18/0.10%

* over 2,500 TYG/TYH 127.5 put spds, 9/64

* -2,000 TYH 127/130 and 127.5/129.5 strangles as a strip, collecting 1-17/64 on

double sale

* +1,000 TYG 126.5/127.5 put strip vs. TYG 129/130 call strip, 18/64 net, call

strip over

* -5,500 FVG 117.5/119.5 put over risk reversals, 0.0 vs. 118-16

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

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