US TSYS/SUPPLY: 5Y Note Preview: Another Concession Required?
Today's $55B 5Y Note (CUSIP: 91282CJN2) auction at 1300ET/1800UK - following on from the biggest 2Y auction tail since May - comes as 5s have been a key beneficiary of softer economic data and deepening Fed cut pricing.
- The current prevailing when-issued yield (4.43% per BBG data) is nearly 50bp below October's high yield (which was the highest at auction since 2007), and just above August's auction.
- The October 25th 5Y auction was the weakest of the year, tailing by 1.7bp on a high yield of 4.899% alongside poor peripheral statistics (the bid-cover of 2.36x and primary dealer takeup of 19.41% were respectively the lowest/highest of 2023).
- Prior to October, September's sale traded through solidly (1.3bp), with August's "on the screws".
- From a relative value perspective: 5s have been outperforming and are trading richer to the curve since the Oct 25th auction: the 2s-5s-10s is fly is last -45bp (vs -30bp a month ago); 2s-5s-7s is -49bp (vs -32bp a month ago). 2s5s had bull flattened to -47bp (going into the 2Y auction), vs -29bp going into 5Y auction day last month.
- The 5-auction average bid-cover ratio is 2.51x, with average primary dealer takeup 14.03%/indirects 66.61%/directs 19.36%.
| 5-Auction Avg | High yield | When-issued yield | Trade through (tail) | High - Median Spread | Bid-to-cover | Primary Dealer Percent | Indirect Percent | Direct Percent | Offering Amount |
| 4.429% | 4.426% | -0.3 | 7.0 | 2.51 | 14.03% | 66.61% | 19.36% | 46.6 | |
| 25-Oct-23 | 4.899% | 4.882% | -1.7 | 8.0 | 2.36 | 19.41% | 61.51% | 19.08% | 52 |
| 27-Sep-23 | 4.659% | 4.672% | 1.3 | 6.0 | 2.52 | 11.23% | 71.15% | 17.62% | 49 |
| 28-Aug-23 | 4.400% | 4.400% | 0.0 | 7.0 | 2.54 | 13.83% | 67.92% | 18.25% | 46 |
| 25-Jul-23 | 4.170% | 4.166% | -0.4 | 7.0 | 2.60 | 13.49% | 64.38% | 22.13% | 43 |
| 27-Jun-23 | 4.019% | 4.012% | -0.7 | 6.9 | 2.52 | 12.21% | 68.10% | 19.69% | 43 |
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USDCAD TECHS: Bullish Trend Structure
- RES 4: 1.4070 1.236 proj of the Sep 19 - Oct 5 - Oct 10 price swing
- RES 3: 1.3987 2.0% 10-dma envelope
- RES 2: 1.3977 High Oct 13 2022 and a major resistance
- RES 1: 1.3866 High Oct 27
- PRICE: 1.3858 @ 15:57 BST Oct 27
- SUP 1: 1.3681/3595 20- and 50-day EMA values
- SUP 2: 1.3477 76.4% retracement of the Sep 19 - Oct 5 rally
- SUP 3: 1.3417 Low Sep 29
- SUP 4: 1.3381 Low Sep 19 and a key support
The USDCAD bullish trend condition strengthened further Friday, with the pair topping key resistance at the Mar 10 high of 1.3862. This week’s climb was triggered by a break of key resistance at 1.3786, the Oct 5 high. This strengthened bullish conditions to confirm a resumption of the uptrend. Friday’s bullish break confirms 1.3977 as the next key upside level, marking the Oct 13 2022 high. Moving average studies are in a bull-mode position too, highlighting an uptrend. On the downside, initial firm support is seen at 1.3681, the 20-day EMA.
US TSYS: Unwinding Risk Ahead Weekend Tsys Extending Highs
- Geopol risk over the weekend saw curves twisted steeper during the second half, short end started outperforming around the time Israeli military spokesman headlines made the rounds: "ISRAELI ARMY SAYS GROUND FORCES EXPANDING ACTIVITY IN GAZA: AP".
- Current Dec'23 2Y futures trade 101-11 (+1.88) while 10Y trades 106-15.5 (+4.5) with initial technical resistance at 106-29 (20-day EMA); 10Y yield -.0099 at 4.8346%, 2Y10Y +2.120 at -17.584.
- Early support in equities evaporated on the headlines as well, longs squaring ahead the weekend (SPX Eminis currently -29.5 at 4125.50).
- Brief two-way reported after Personal Income came in a little lower than expected (0.3% vs. 0.4% est, 0.4% prior), Personal Spending firmer (0.7% vs 0.5% exp, 0.4% prior). PCE deflator's in line: MoM (0.4% vs. 0.3% est, 0.4% prior); YoY (3.4% vs. 3.4% est, 3.4% prior/rev).
- Fast two-way noted Tsys pared gains then rebound after higher than expected UofMich 1Y inflation figure at 4.2% vs. 3.8% est (3.8% prior), 5Y in-line with exp at 3.0%.
- Quiet start to the week ahead, main focus on Wednesday afternoon's FOMC policy annc, ADP private employment data early Wednesday and Non-Farm payrolls next Friday. US Treasury's quarterly borrowing estimates on Monday.
US TSYS: Late SOFR/Treasury Option Roundup: Nov Tsy Ops Expiring
SOFR/Treasury option flow remained mixed Friday, early focus on unwinding/rolling November serial Tsy options ahead today's expiration (Nov SOFR options expire in 2 weeks). Underlying futures off lows, trading mildly higher in the short end to intermediates. As such, projected rate hikes into early 2024 inch lower: November at 0% to 5.325%, December cumulative of 4.3bp at 5.372%, January 2024 cumulative 6.9bp at 5.398%, March 2024 at 2.8bp at 5.356%. Fed terminal at 5.40% in Feb'24.
- SOFR Options:
- Block, 9,000 SFRZ3 95.87/96.25/96.50 broken call flys, 0.0 (all legs appear to be crossed at 0.75) ref 94.585
- Block, 5,000 SFRZ3 94.12/94.37 put spds, 0.5 ref 94.585
- +15,000 SFRM 94.75/94.87 call spds from 0.25-0.5 over the SFRM4 94.37/94.50 put spds
- Block, 8,000 SFRH4 93.75/94.25 2x1 put spds, 2.0 ref 94.665
- 2,000 SFRZ3 94.43/94.56 put spds, 3.5 ref 94.58
- +5,000 0QX3/0QZ3 95.75 call spds, 9.0 net (Dec over) vs. 95.395/0.12
- +2,000 2QZ3 96.00/96.37 call spds, 9.5 vs. 95.84/0.24%
- +2,000 SFRH4 96.00 calls, 9.0 vs. 94.695/0.14%
- Block 6,000 SFRF4 94.31 puts, 2.75 ref 94.67
- 2,000 SFRH4 94.18/94.56/94.75 broken put flys ref 94.66 to -.665
- 2,000 0QZ3 94.75/94.93/95.12 put trees ref 95.39
- Treasury Options: Reminder, Nov serial options expire today
- +22,000 TYZ3 107.5 calls, 33 ref 106-10.5
- over 39,500 TYX3 107.5 puts 111-112 ref 106-10 to -09.5
- +5,000 USZ3 102/106 put spds 40 ref 109-13
- 2,000 TYZ3 104/104.5/105.5 broken put flys ref 106-09
- -3,500 TYZ3 106.5 puts, 100 ref 106-12.5
- over 12,800 Wednesday weekly 10Y 107 calls, 11-13 ref 106-04 to -08
- 1,650 FVZ3 105.75/107.25 call spds
- over 5,200 TYZ3 106 puts, 58 last
- over 5,700 TYX 106.5 calls, 4 last
- over 6,200 TYX3 106 puts, 4 last
- over 5,000 TYX3 106.25 puts, 9 last
