US TSYS: Dragged Higher On Very Low Volumes, Data and Issuance Ahead
Treasuries have firmed throughout Asia and London trading, with assistance from JGBs paring previous losses and a dovish repricing in EUR STIR following Schnabel yesterday (despite her broadly clarifying pre-ECB meeting remarks). Year-end factors could also be at play. Today’s focus will be on a solid data docket before further issuance, the latter highlighted by the 5Y but with some added attention on bills after yesterday’s preference for longer-dated maturities.
- Cash yields are 0.5-2.5bp lower, bull steepening with curves pulling back a little further off recent highs.
- TYH6 trades at session highs of 112-16 (+05) on tiny cumulative volumes of 125k.
- It reverses yesterday’s further losses which saw a low of 112-09+ (not troubling support at 112-06, Dec 16 low) but is only back at the low end of Friday’s range and is still a way off resistance at 112-21+ (50-day EMA).
- Data: Weekly ADP (0815ET), GDP Q3 (0830ET), Durable goods Oct prelim (0830ET), Philly Fed non-mfg (0830ET), Weekly Redbook retail sales (0855ET), IP/cap util Nov & Oct (0915ET), Conf Board consumer survey Dec (1000ET), Richmond Fed mfg Dec (1000ET)
- Coupon issuance: $70B 5Y Note - 91282CPR6, US Tsy $28B 2Y FRN - 91282CPG0 (1300ET). Yesterday’s 2Y tailed by 0.2bp and bid-to-cover slipped from 2.68 to 2.58, whilst last month’s 5Y also tailed by 0.2bp but with the bid-to-cover nudging higher from 2.38 to 2.41.
- Bill issuance: US Tsy $75B 6W & $50B 52W bill auctions (1130ET). Yesterday’s six-month offering was preferred to the three-month with Fed rate expectations potentially at play.
- Politics: Trump doesn’t have any public events scheduled
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
