US TSYS: TSY YLD RISING, 10Y TAIL, SENATE PASSES 2Y BUDGET

US TSYS SUMMARY: Tsys make new session lows into the close, extending bottom of

range several times after newly upsized $24B 10Y note auction that tailed .8bp.

Waves of selling after Bipartisan budget deal passes Senate with military and

domestic spending compromises. Rather muted trade on sell-off, however, despite

heavy volume (TYH>1.9M), OTC vol actually weaker despite late drive higher in

Tsy ylds.

- Sources reporting light/sporadic buying on the way down, not short covering

another added; Rebound in US$ (DXY +.688, 90.273) added to sell pressure.

Sporadic curve flattener unwinds in second half, prop and fast$ selling, real$

selling in long end late.

- Heavy selling in front end Eurodollar futures (EDH8-EDM8>900k) as rate hike

probability marched higher after halving the amount anticipated for year in

first half of week. Mar chances back to 86.6%, June at 55.3% according to MNI

PINCH model. Ongoing heavy option volume, 2-way put flow w/better buying/rate

hike insurance

- Late ylds: 2Y 2.130%, 3Y 2.326%, 5Y 2.563%, 7Y 2.743%, 10Y 2.843%, 30Y 3.117%

US TSY FUTURES CLOSE: Trade broadly weaker into the close, near late session

lows after extending bottom of range several times after newly upsized $24B 10Y

note auction that tailed .8bp. Waves of selling after Bipartisan budget deal

passes Senate with military and domestic spending compromises. 

Latest curve update:

* 2s10s +2.084, 71.140 (71.330H/67.517L);

* 2s30s +3.310, 98.978 (99.044H/94.223L);

* 5s30s +3.201, 55.664 (56.000H/51.626L);

Current futures levels:

* Mar Ultra bonds down 2-09/32 at 156-23 (156-22L/159-14H)

* Mar 30-yr Bond futures down 1-20/32 at 144-13 (144-12L/146-12H)

* Mar 10-yr futures down 17/32 at 120-30.5 (120-29L/121-19.5H)

* Mar 5-yr futures down 9/32 at 114-17.5 (114-16L/114-28.75H)

* Mar 2-yr futures down 2.5/32 at 106-20.25 (106-19.25/106-24H)

US EURODOLLAR FUTURES CLOSE: Trade broadly weaker by the bell, at/near session

lows on heavy volume w/large front end selling in second half as rate hike

probabilities back on the rise. Current White pack (Mar'18-Dec'18):

* Mar'18 -0.035 at 98.075

* Jun'18 -0.025 at 97.875

* Sep'18 -0.020 at 97.755

* Dec'18 -0.025 at 97.615

* Red pack (Mar'19-Dec'19) -0.030-0.045

* Green pack (Mar'20-Dec'20) -0.055-0.060

* Blue pack (Mar'21-Dec'21) -0.065

* Gold pack (Mar'22-Dec'22) -0.070

US SWAPS: Spds tighter across the curve, just off low end session range after

initial move. Modest deal-tied flow in short end, modest two-way flow w/better

bank and real$ receiving in intermediates to long end. Earlier flow included

5s/10s flattener, $191.8k 3s5s10s fly, receiving belly. OTC vol actually weaker

despite late drive higher in Tsy ylds. Latest spread levels:

* 2Y  -2.12/22.00

* 5Y  -0.88/8.69

* 10Y -1.44/1.12

* 30Y -1.12/-16.25

PIPELINE: $3B *Sweden Gvt International Bond (SWED) 3Y priced earlier

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

02/07 $1.15B *Bank Nederlandse Gemeenten NV (BNG) 3Y, MS +10 area

02/07 $3B *Sweden Gvt International Bond (SWED) 3Y, MS -1

Chatter, 3M (MMM) A1/AA-

Chatter, Bank of New Zealand (BZLNZ) A1/AA-

Chatter, KeyBank 

Chatter, Fifth Third Bank (FITB) A3/A

Chatter, State Street Corp (STT) A1/A

OUTLOOK: - Feb 08 03-Feb jobless claims (230K, 232K) 0830ET 

- Feb 08 04-Feb Bloomberg comfort index (54.6, --) 0945ET 

- Feb 08 02-Feb natural gas stocks w/w 1030ET 

- Feb 08 US Tsy $16B 30Y bond auction 1300ET 

- Feb 08 07-Feb Fed weekly securities holdings 1630ET 

- Feb 08 Dallas Fed Pres Kaplan moderated Q&A session at Global Interdependence

Center Conference in Frankfurt, with media Q&A. 0450ET 

- Feb 08 Minn Fed Pres Kashkari moderated Q&A Pierre, South Dakota, Q&A. 0900ET 

- Feb 08 KC Fed Pres George on economic outlook at "Wichita Independent Business

Association Annual Meeting" in Wichita, Kansas, audience Q&A. 2100ET

Eurodollar/Treasury Option Summary

Eurodollar options, Pit/screen:

Block, 1329:07ET

* 10,000 Sep 75/76 put spds, 3.0

* 10,000 Blue Mar/Blue May 71 straddle spds, 11.0

* +5,000 short Jun 71/72/73 put trees, 2.0

* 7,000 Green Sep 66/70 put spds, 8.0 vs.

* 7,000 short Jun 78/80 call spds, 4.0

* -20,000 short Dec 77/80 call spds, 3.5

Block, 0941:50ET, adds to 5k in pit

* 10,000 short Jun 72 puts, 5.0

* 10,000 Blue Apr 68/73 call over risk reversals, 2.5 vs. 97.17/0.46%

* 6,500 Mar 80 puts, 0.5

* -5,000 short Dec 72/Gold Dec 71 call spds, 0.5 net credit steepener

* 4,000 Sep 77/78/80 put flys, 2.5

* +10,000 Dec 71/72/73 put flys, 1.5 screen -- hedging 4 hikes

* 8,000 Dec 73/75 put spds screen

* +4,500 Mar 80/82 call over risk reversals, 0.5 screen

Tsy options, Pit/screen:

* +15,000 TUJ 106.8/107.1 call spds, 1/64 -- still bid

* -12,750 TYH 120.5 puts, 12/64 vs. 121-08/0.27%

* -3,000 TYH 119 puts, 2

* +4,000 TYJ 124 calls, 5/64

* 2,000 TYH 121/121.75 call over risk reversals, 2/64

* 2,500 TYH 121.5 straddles, 63- to 1-0/64

* 2,000 FVH 114.5/114.7/115.2 put trees, 15/64 vs.

* 2,000 FVH 115.2/115.5/116 call trees, 1/64

* 10,000 TUM 106.1/106.3 put spds vs. 5,000 TUM 106.7 calls, 6/64 net package

* 7,936 TYJ 119.5 puts, 20/64 vs. 10,966 TYJ 120 puts, 29/64

* 1,500 TYH 120.5/122.5 strangles, 22/64

* 2,600 TYJ 118.5/120 put spds, 20/64 vs. 121-12

* -2,000 TYH 121.5 straddles, 1-2 to 1-3/64

Screen trade/highlights (aside from +39.6k TUH 106.8c buy/Block at 4/64)

* +25,000 FVH 115 calls, 11/6 (paper bought 50k at 4/64 on Monday)

* -8,500 FVH 114.5puts from 8- to 7.5/64

* -3,000 TYJ 119.5 puts, 16/64

* -4,000 TYH 121/122.5 put spds, 60/64

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

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