BONDS: EGBs-GILTS CASH CLOSE: German Twist Steepening As Fiscal Reform Confirmed
Mar-18 17:53
European curves steepened Tuesday, with short-end German instruments outperforming.
- Core FI fell to the session's weakest levels in morning trade as the two day rally in equities appeared to extend into a third.
- But the equity rally faded in the afternoon, with oil prices also fading, helping core FI fully recover (though also reversing earlier periphery / semi-core EGB spread tightening).
- The Bundestag approved the much anticipated German fiscal reforms including a loosening of the debt brake, though this appeared to have been well-anticipated as Bunds saw only limited and temporary weakness following the news.
- Comments by ECB's Rehn in an MNI Connect event suggested that there is a high bar to him not voting for a cut in April (markets still have it better than 50/50 implied). In data, the Eurozone trade surplus was slightly larger than expected in January, while German ZEW jumped to the highest in 3 years (corresponding to the DAX equity rally and above fiscal developments).
- The German curve twist steepened on the day, with yields down through the 10Y segment, while the UK's bear flattened through the 10Y segment (though 2s30s was higher). Periphery/semi-core spreads closed a little wider.
- We get final February Eurozone inflation data Wednesday, but the week's main events in Europe are in the UK Thursday with labour market data and the BoE decision.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.3bps at 2.176%, 5-Yr is down 1.2bps at 2.46%, 10-Yr is down 0.8bps at 2.81%, and 30-Yr is up 0.5bps at 3.121%.
- UK: The 2-Yr yield is up 0.8bps at 4.201%, 5-Yr is up 0.7bps at 4.295%, 10-Yr is up 0.5bps at 4.643%, and 30-Yr is up 1.1bps at 5.229%.
- Italian BTP spread up 0.8bps at 110.8bps / French OAT up 0.9bps at 68.3bps
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US TSYS: Yields Pull Back Again With Consumer Growth Story In Question
Feb-14 21:08
Treasuries outperformed global counterparts Friday, fully completing a reversal from a midweek selloff.
- A large miss in January retail sales (-0.9% M/M vs 0.7% prior, -0.2% consensus) represented the biggest sequential drop in 22 months, with a similarly weak "control group" figure leading to a 0.5pp downgrade to the Atlanta Fed's GDP nowcast (to 2.3% GDP growth in Q1, i.e. no acceleration from Q4).
- That was enough to see the 10Y Treasury yield drop 7bp in the subsequent half hour, continuing the downtrend seen beginning in the immediate aftermath of Wednesday's hot CPI release. 10Y yields dropped over 21bp from the Wednesday high to Thursday's low, ultimately ending a tumultuous week 1.5bp lower.
- Yields ticked a little higher in afternoon trade Friday but the curve leaned bull steeper on the day, with the belly outperforming: 2-Yr yield is down 4.6bps at 4.261%, 5-Yr is down 5.7bps at 4.3328%, 10-Yr is down 5.1bps at 4.4782%, and 30-Yr is down 3.9bps at 4.6982%.
- In futures: Mar 10-Yr futures (TY) up 9/32 at 109-08 (L: 108-26 / H: 109-15.5).
- Other data (industrial production mixed, import prices soft) had little lasting impact.
- The coming week’s data schedule is relatively light, due in part to Monday’s Presidents Day holiday (SIFMA recommends bond cash close, equities closed), with initial jobless claims, February prelim PMIs, and regional Fed manufacturing surveys among the highlights. Supply includes 20Y Bond and 30Y TIPS auctions.
- We also get plenty of Fed communications including the January meeting minutes, and speaking appearances by both doves (Gov Waller) and hawks (St Louis Pres Musalem).
USDCAD TECHS: Bear Cycle Extends
Feb-14 21:00
- RES 4: 1.4948 High Mar 2003
- RES 3: 1.4814 High Apr 2003
- RES 2: 1.4503/1.4793 High Fb 4 / 3 and key resistance
- RES 1: 1.4380 High Feb 10
- PRICE: 1.4175 @ 16:54 GMT Feb 14
- SUP 1: 1.4107 50.0% retracement of the Sep 25 ‘24 - Feb 3 bull cycle
- SUP 2: 1.4011 Low Dec 5 ‘24
- SUP 3: 1.3944 61.8% retracement of the Sep 25 ‘24 - Feb 3 bull cycle
- SUP 4: 1.3894 Low Nov 11 ‘24
USDCAD broke lower Thursday, breaking out of a tight trading range this week and remains soft. A key support at 1.4261, the Jan 20 low, has been cleared and this signals scope for an extension of the current bear cycle - a correction. Scope is seen for a move towards 1.4107, a Fibonacci retracement. Initial firm resistance to watch is 1.4380, the Feb 10 high. A break would highlight an early bullish reversal signal.
OPTIONS: Mixed SOFR Rates Trade To Cap Week
Feb-14 20:47
Friday's US rates/bond options flow included:
- SFRH5 95.62p, traded half in 2k.
- SFRH5 96.93c, traded 0.25 in 4k.
- SFRH5 95.75/95.62ps 1x2, Traded 3.75 in 3k.
- SFRK5 97.00c, traded for 0.75 and 1 in 3k.
- SFRU5 95.93/95.81/95.68p fly, traded 1 in 1.5k
- SFRU5 96.50c, traded for 6.5 in 1.5k.
- SFRU5 95.87^, traded for 36 in 5k.
- SFRJ5 95.87/95.75/95.68p fly 1x3x2 with SFRK5 95.81/95.68/95.62p ladder 1x3x2, bought for 10 in 2k.
- SFRM5 95.68p, sold at 2.5 in 10k.
- 0QH5 96.00c, bought for 13 in 3k.
- TYH5 107p, bought for 11 in 15k
- TYJ5 107p, bought for 11 in 17k total.
- TYJ5 107/106ps, bought for 7 in 15k total.
