MNI ASIA MARKETS ANALYSIS: Curves Twist Steeper Ahead Tax Bill

HIGHLIGHTS

• Treasuries look to finish mixed Tuesday, curves steeper (2s10s +3.773 at 50.646) as short end rates recovered from early selling.
• No significant reaction to Johnson Redbook's retail sales index posted a 5.4% Y/Y rise in the week ending May 17, which brought May month-to-date to 5.6% Y/Y.
• StL Fed Musalem reiterated overall he agrees with the "wait-and-see" approach adopted by the Fed amid heightened tariff-related uncertainty.
• Late comment from Atlanta Fed Bostic: that passage of Pres Trump's "big, beautiful tax bill" could add to overall uncertainty.

US TSYS

MNI US TSYS: Big, Beautiful Tax Bill Watching, Could Drive Uncertainty

• Treasuries look to finish mixed Tuesday, off early session lows, curves twisting flatter as short end rates outperform. Relatively quiet session with limited data (Philly Fed non-mfg activity & Redbook retail sales index) and multiple Fed speakers on the day.
• Depending on how tariffs and their impacts play out, StL Fed Musalem appeared to suggest he could support either an easing bias; a "balanced" approach, or holding rates indefinitely. In the meantime, policy "is currently well positioned."
• Stocks weaker, but off late lows, short covering as markets await vote on tax bill. Late comment from Atlanta Fed Bostic: that passage of Pres Trump's "big, beautiful tax bill" could add to overall uncertainty.
• Relatively heavy session volumes tied to surge in Jun/Sep Tsy futures rolling, Sep takes lead quarterly on May 30.
• Currently, Jun'25 10Y  futures trade +2 at 110-06.5 (109-28.5 low/110-14.5 high), well withing technical ranges: resistance above at 110-23.5 (20-day EMA); support at 109-18.5 (Low May 15).
• Cross asset roundup: Greenback gradually extended late lows (BBDXY -2.51 at 1222.47); Gold surged to 3,294.13 (+64.57); Crude mildly weaker (WTI -.13 at 62.56.

REFERENCE RATES (PRIOR SESSION)
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US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.29% (-0.01), volume: $2.570T
• Broad General Collateral Rate (BGCR): 4.28% (-0.01), volume: $1.059T
• Tri-Party General Collateral Rate (TCR): 4.28% (-0.01), volume: $1.018T
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $116B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $299B

FED Reverse Repo Operation

RRP usage retreats to $136.033B this afternoon from $180.417B yesterday, total number of counterparties at 32. Usage had fallen to $54.772B last Wednesday, April 16 -- lowest level since April 2021. Conversely, usage had surged to the highest level since December 31, 2024 on Monday, March 31: $399.167B.

US SOFR/TREASURY OPTION SUMMARY

Option desks reported better SOFR put trade on net Tuesday in addition to some sporadic call buys on decent volume, Treasury options saw decent vol structures earlier. Underlying futures mixed, curves steeper with short end outperforming. Projected rate cut pricing largely steady vs. morning levels (*) as follows: Jun'25 steady at -1.3bp, Jul'25 steady at -7.5bp, Sep'25 at -21.5bp (-21.8bp), Oct'25 steady at -35.5bp, Dec'25 at -52.9bp (-53bp).

SOFR Options:
+80,000 SFRZ5 94.87/95.37 2x1 put spds 0.0 ref 96.195
+8,000 SFRM5 95.75/96.00 call spds, 0.75 vs. 96.675/0.16%
+10,000 SFRH6 95.75/96.25 3x1 put spds 0.5 vs. 96.39/0.14%
+50,000 SFRM5 97.25 calls, cab
-2,500 0QH6/SFRH7 95.00 put spds, 10.5
+8,000 SFRM5 95.68/95.81/95.93 call flys, 0.5 ref 95.6825
8,000 SFRZ5 96.50 call vs. 2QZ5 96.75 calls, 5-5.25 flattener (+2QZ5)
+10,000 SFRU5 95.75/95.81 put spds, 3.75 vs. 95.90/0.10%
-5,000 0QU5 96.87/97.00/97.12 call trees, 7.0 vs. 96.00/0.19%
-2,500 3QM5 95.87/96.12 2x1 put spds, 1.5 ref 96.33
+4,000 SFRM5 95.68/95.75 put spds, 5.5 ref 95.6825
+5,000 SFRU5 95.87 vs. 0QU5 96.25 put spds, 1.25
5,000 SFRN5 95.62 puts, 0.5
4,000 SFRH6 94.75 puts, ref 96.42
Block, 5,000 SFRM5 95.62/95.75/95.87 put flys, ref 95.69
3,600 SFRM5 95.68/95.75 put spds ref 95.6925 to -.69

Treasury Options:
-7,800 TYN5 110 straddles 1-41 ref 110-03.5
-11,000 TYM5 110.25/111.5 put spds 1-05
+9,000 TYQ5 108/112.5 strangle, 59
Block, +17,000 TYQ5 113 call w/ 17,500 TYQ5 107.5 puts, 47 total vs. 110-05
2,400 TYN5 114/114.5 call spds ref 110-14

BONDS: EGBs-GILTS CASH CLOSE: Gilts Underperform Post-Pill, Pre-CPI

Yields closed mostly higher across Europe Tuesday, with Gilts underperforming Bunds ahead of UK CPI data.

• The tone for Gilt weakness was set by BoE hawkish dissenter Pill, who sounded less dovish than we had expected in saying that while there should be cuts, a quarterly 25bp pace is too fast, particularly since the first cut was delivered earlier than he would have preferred.
• Strength in European equities and renewed weakness in Treasuries weighed on the European FI space, though the sell-off stalled a couple of hours before the cash close and yields finished off their highs.
• In data, Eurozone flash May consumer confidence was a little stronger-than-expected.
• The German curve twist steepened, with the UK's leaning bear steeper (with 2s underperforming Schatz, in light of Pill's commentary).
• Periphery/semi-core EGB spreads closed mostly tighter, led by BTPs and OATs.
• Wednesday's highlight is UK CPI which could turn out to be the most important UK data release of 2025. MNI's preview is here.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.1bps at 1.842%, 5-Yr is up 0.2bps at 2.151%, 10-Yr is up 1.8bps at 2.606%, and 30-Yr is up 5bps at 3.088%.
• UK: The 2-Yr yield is up 3.6bps at 4.043%, 5-Yr is up 3.9bps at 4.196%, 10-Yr is up 3.9bps at 4.703%, and 30-Yr is up 3.9bps at 5.458%.
• Italian BTP spread down 1.3bps at 99.6bps  / French OAT down 1.3bps at 66.3bps  

MNI OPTIONS: Resurgence In Euribor Call Structure Buying

Tuesday's Europe rates/bond options flow included:

• ERM5 97.87p, sold at 1.25 in 10k and half in 20k.
• ERU5 98.25/98.37/98.50/98.62c condor sold at 2 in 10k
• ERU5 98.25/98.50/98.75c fly, bought for 3 and 3.25 in 7.5k total
• ERH6 99.00c, sold at 3 in 4.5k
• SFIN5 95.90 puts paper paid 2.75 on 4K
• SFIQ5 96.10/96.25/96.40 call fly paper paid 2.5 on 6K
• SFIU5 95.90/95.80/95.70p fly, bought for 1.5 in 2k

MNI FOREX: Greenback Sold as FX Catches Up with Long-End Weakness

Phase of bond sales in both Europe and the US starting to be felt in dollar markets - despite initial resilience to the steepening bias for the US curve. EUR/USD is back toward the upper-end of the day's range, but resistance layered between 1.1278-88 stands ahead of any bullish breakout.

• GBP looks through headlines that the UK are freezing free trade deal negotiations with Israel, with GBP/USD now over 30 pips off lows. We noted earlier today that the pair struggles to maintain gains above the $1.34 handle - a level that will remain in focus headed into tomorrow's inflation print - a number we see as particularly consequential for UK monetary policy this year.
• GBP/AUD's RBA tripped gains see the cross hit new daily highs, with prices still some way off more major resistance into the 2.1030 late April high.

MNI FX OPTIONS: Expiries for May21 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1140-50(E1.3bln), $1.1200(E809mln), $1.1250(E1.1bln), $1.1270(E500mln), $1.1390-05(E2.1bln)
• USD/JPY: Y142.00($878mln), Y144.50($610mln)

MNI US STOCKS: Late Equities Roundup: Extending Lows

• Stocks extend session lows late Tuesday, investor focus on upcoming earnings from Modine Mfg, Toll Brothers, Palo Alto Networks, Viasat and Evolv Technologies Holdings after the close.
• Currently, the DJIA trades down 268.7 points (-0.63%) at 42526.64, S&P E-Minis down 48.25 points (-0.81%) at 5934.25, Nasdaq down 170.4 points (-0.9%) at 19045.84.
• Semiconductor makers continue to weigh on the tech sector in late trade, laggers include Fair Isaac -7.16%, Super Micro Computer -4.45%, Seagate Technology Holdings -2.30% and Advanced Micro Devices -1.94%.
• Communication Services sector weighed by interactive media and entertainment shares: Live Nation Entertainment -1.81%, Alphabet -1.36%, Meta Platforms -0.94% and Match Group -0.90%.
• On the positive side, electricity providers continued to lead gainers in the second half: Eversource Energy +3.34%, Dominion Energy +2.92%, Entergy Corp +1.59% and Southern Co +1.31%.
• Meanwhile, retailers and food producers buoyed Consumer Staples: Dollar Tree +3.54%, Dollar General +3.53%, Kroger Co +1.13% and Sysco Corp +1.10%.

MNI EQUITY TECHS: E-MINI S&P: (M5) Bulls Remain In The Driver’s Seat

• RES 4: 6080.75 High Feb 26   
• RES 3: 6057.00 High Mar 3 
• RES 2: 6000.00 Round number resistance     
• RES 1: 5993.50 Intraday high                                    
• PRICE: 5934.00 @ 1508 ET May 20
• SUP 1: 5837.25/5693.1 High Mar 25 / 50-day EMA                       
• SUP 2: 5455.50 Low Apr 30
• SUP 3: 5355.25 Low Apr 24
• SUP 4: 5127.25 Low Apr 21 and a key support 

A bullish trend condition in S&P E-Minis remains intact and the contract is holding on to its latest gains. An important resistance at 5837.25, the Mar 25 high and a bull trigger, has been cleared. This strengthens the current bullish theme, and paves the way for a continuation near-term. Sights are on the 6000.00 handle next. Initial firm support to watch lies at 5693.1, the 50-day EMA.

MNI COMMODITIES: Precious Metals Rally, Crude Steady

• Spot gold has risen by 1.8% to $3,288/oz, bringing the yellow metal to its highest level since May 12.
• Analysts at Saxo bank said that short covering, once gold breached the $3,250 level, triggered the further move higher as the market assesses whether it is past peak optimism.
• The move has seen gold pierce initial resistance at $3,259.3, the 20-day EMA, a clear break of which would turn attention to $3,347.5, the May 9 high.
• Silver has also rallied sharply today, with the precious metal up by 2.0% at $33.0/oz, the largest one-day gain since May 6.
• A bullish theme in silver remains intact, with resistance to watch at $33.686, the Apr 25 high. Clearance of this level would confirm a resumption of the uptrend.
• Meanwhile, crude prices have struggled for clear direction and are holding within yesterday’s range as the market continues to watch progress on trade, Iran and Ukraine.
• WTI Jun 25 is down by 0.1% at $62.6/bbl.
• For WTI futures, key resistance to watch is $63.4, the 50-day EMA, a clear break of which would highlight a stronger reversal, opening $65.82, the Apr 4 high.
• Elsewhere, Henry Hub has surged by over 10%, with support coming from warmer weather forecasts amid the transition from a mild spring to summer.
• Traders are also capitalizing on lower prices, which has sparked some bargain buying, Bloomberg reported.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
21/05/2025	0600/0700	***	GB	Consumer inflation report
21/05/2025	0900/1000	**	GB	Gilt Outright Auction Result
21/05/2025	1100/0700	**	US	MBA Weekly Applications Index
21/05/2025	1430/1030	**	US	DOE Weekly Crude Oil Stocks
21/05/2025	1600/1800		EU	ECB's Lane at Monpol Panel Discussion
21/05/2025	1615/1215		US	Richmond Fed's Tom Barkin, Fed Gov. Michelle Bowman
21/05/2025	1700/1300	**	US	US Treasury Auction Result for 20 Year Bond
22/05/2025	2300/0900	***	AU	Judo Bank Flash Australia PMI
22/05/2025	2350/0850	*	JP	Machinery orders
22/05/2025	0030/0930	**	JP	Jibun Bank Flash Japan PMI