EU CREDIT UPDATE: CREDIT UPDATE: EUR Market Wrap
Jul-10 11:02
- 2y/10y bunds are -3bp/-6bp – our DM team earlier flagged dovish spillovers from the RBNZ decision overnight supported the wider FI space this morning. The remainder of today’s regional calendar is light, with broader focus on today’s BoE speakers and tomorrow’s US CPI release.
- Main/XO are -1bp/-4bp at 53bp/290bp while €IG/€HY looks flat/+2bp with Healthcare lagging slightly in IG. Primary is open with deals from La Mondiale (RT1), Silfin, Logicor, Piraeus Bank, CNP Assurancecs, CA Auto Bank, Bank of NZ. Curve movers include Aroundtown (up to 12bp tighter), Grenke (3-4bp wider), Thames (up to 12bp wider), Gernerali (up to 5bp wider).
- SXXP is +0.6% with Chemicals the only sector mildly in the red while SPX futures are flat. Notable €IG movers include Technip +6%, Aroundtown +5%, Deutsche Pfandbriefbank +5%, Enegas +5%.
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OPTIONS: Political Risk Drives Surge in EUR Options Activity, Downside in Focus
Jun-10 10:55
- Given the sharp uptick in volatility and breakout in EUR spot, no surprise to see EUR hedges trading in size and well ahead of average for this time of day. Notably, the break to multi-year lows in EUR/GBP has helped drive demand for downside exposure, led by 0.8375 vanilla puts and trades consistent with a sizeable 0.8300/0.8396 put spread rolling off in early August, thereby capturing the fallout of both the UK and French elections.
- No surprise to see the uptick in front-end vols across G10, and this is most clearly seen in EUR/GBP as the 1m contract captures both votes. 1m vols added 0.8 points today to touch the highest since mid-January, marking the biggest one-day gain since March last year (triggered by concerns surrounding the sustainability of Credit Suisse).
- This theme is mirrored in EURJPY options trade, as Y160 puts tip the put/call ratio over 2.00, however there are some signs of steadier EUR/USD markets, with near E3bln in calls trading across 1.0775, 1.0800, 1.0900 and 1.1125 strikes this morning alone.
US TSYS: Tsy Ylds Higher as EU Political Uncertainty Roils Ahead Wed CPI, FOMC
Jun-10 10:54
- Carry-over after Friday's strong employment data decline, Treasuries are mirroring weaker EGBs after France President Macron called for snap election following weekend parliamentary elections.
- While far-right forces made strong gains vs. the majority center-right European People’s Party (EPP) in EU elections, Treasury futures have pared losses, intermediates back near the middle of the overnight range.
- Limited US data today and tomorrow, this week's main focus is on Wednesday's May CPI and FOMC policy announcement.
- Rush of US Treasury auctions ahead the midweek event risk: $70B each 13- and 26W bills at 1130ET, $58B 3Y Note auction (91282CKV2) at 1300ET.
- Sep'24 10Y Treasury futures are currently trading -6 at 109-04 -- inside 6.5-tic range: 109-02 low/109-08.5 high. Friday's sharp sell-off undermines the recent bullish theme, highlighting a potential bearish reversal. The TYU4 contract breached both the 50- and 20-day EMA, while continued decline would strengthen a bearish threat at at 108-27.5 (June 3 low).
- Cash yields are currently mildly higher: 5s +.0159 at 4.4784, 10s +.0256 at 4.4591%, 30s +.0277 at 4.5824%, while curves are running steeper: 2s10s +2.358 at -43.181, 5s30s +1.185 at 10.215.
STIR: OI Points To Mix Of Net Short Setting & Long Cover In SOFR Futures Following NFPs
Jun-10 10:51
The combination of Friday's post-payrolls hawkish repricing and preliminary open interest data points to a mix of net short setting and long cover across the SOFR strip ahead of the weekend.
- The whites seemingly saw short setting in net pack OI terms, with more modest rounds of net short setting seen in both the greens and blues (pockets of net long cover were also witnessed in all 3 packs).
- Meanwhile, the reds seemed to see net long cover in most contracts, biasing the net pack OI swing in that direction.
- Interestingly, there was no sign of cover from the sizeable long that was built in SFRM4 on Thursday (when over 200K of the contract was lifted in short order during the NY afternoon).
- FOMC-dated OIS moved to priced ~36bp of cuts through year end in the wake of the jobs report vs. ~49bp at the close on Thursday.
- The first 25bp move is no longer fully discounted come the end of the Nov FOMC.
- Wednesday's FOMC decision & CPI readings present the next major risk events.
| 07-Jun-24 | 06-Jun-24 | Daily OI Change | Daily OI Change In Packs | ||
| SFRH4 | 903,546 | 905,972 | -2,426 | Whites | +17,260 |
| SFRM4 | 1,357,737 | 1,349,739 | +7,998 | Reds | -17,537 |
| SFRU4 | 1,202,797 | 1,168,343 | +34,454 | Greens | +1,499 |
| SFRZ4 | 1,105,001 | 1,127,767 | -22,766 | Blues | +2,496 |
| SFRH5 | 808,268 | 806,901 | +1,367 | ||
| SFRM5 | 794,592 | 804,549 | -9,957 | ||
| SFRU5 | 742,970 | 743,273 | -303 | ||
| SFRZ5 | 809,361 | 818,005 | -8,644 | ||
| SFRH6 | 560,388 | 563,233 | -2,845 | ||
| SFRM6 | 504,456 | 500,300 | +4,156 | ||
| SFRU6 | 414,526 | 405,187 | +9,339 | ||
| SFRZ6 | 386,284 | 395,435 | -9,151 | ||
| SFRH7 | 257,395 | 249,478 | +7,917 | ||
| SFRM7 | 193,888 | 194,740 | -852 | ||
| SFRU7 | 160,187 | 159,452 | +735 | ||
| SFRZ7 | 163,435 | 168,739 | -5,304 |
