MNI ASIA OPEN: Policy Uncertainty Weighs on Treasury Yield

EXECUTIVE SUMMARY

• MNI: Fed's Musalem Sees Inflation Risks Skewed To Upside
• MNI FED: Atlanta's Bostic Sees 2 2025 Cuts Amid Slowing Jobs Market, Tariff Risks
• MNI US-RUSSIA: Bessent-US Ready To Ramp Up Or Wind Down Sanctions
• MNI US DATA: No Surprises In Jobless Claims Report

US

MNI: Fed's Musalem Sees Inflation Risks Skewed To Upside

Federal Reserve Bank of St. Louis President Alberto Musalem warned Thursday the risk that inflation stalls above 2% or moves higher is skewed to the upside, though his baseline scenario is consumer price growth falls back to 2% and monetary policy moves back to neutral. "I expect inflation will continue to converge to the FOMC’s 2% target and the labor market will remain near full employment. This baseline scenario requires that monetary policy remains modestly restrictive until inflation convergence is assured, at which point the policy rate can be gradually reduced toward the neutral level as convergence progresses," he said in remarks prepared for The Economic Club of New York. 

MNI FED: Atlanta's Bostic Sees 2 2025 Cuts Amid Slowing Jobs Market, Tariff Risks

Atlanta Fed President Bostic confirms that he's still looking for 2 rate cuts this year, a standpoint that he had more or less implied in previous commentary. "My outlook for this year still has two rate cuts in it. I do think the uncertainty around that is pretty significant," he told reporters on a call. "While that's my baseline expectation, there's a lot that's going to happen that could influence that in both directions." He also said that policy is currently in "moderately restrictive territory", repeating his neutral estimate at 3-3.5%.

NEWS

MNI US-RUSSIA: Bessent-US Ready To Ramp Up Or Wind Down Sanctions

Speaking to Bloomberg TV, US Treasury Secretary Scott Bessent says "If we need to, [we] will take off Russia sanctions", adding that the US is "ready for a ramp-up or wind down" of sanctions. His comments come as the EU is moving forward with its 16th package of sanctions on Russia. Permanent representatives approved the latest round - targeting Russian aluminium and its shadow shipping fleet - on 19 Feb, with EU foreign ministers set to give final sign-off on 24 Feb, the third anniversary of the full-scale invasion of Ukraine. 

• As NYT notes, the unwinding of US sanctions could ease Russia's ability to conduct business abroad if US banks can facilitate transactions in US dollars. However, two-thirds of Russia's overseas assets are held in the EU, and there is little chance of a change in Brussels' stance on trade or energy purchases. The US pursuing a unilateral unwinding of sanctions on Russia would not have the same political leverage as a broader loosening.
• The potential for the US to unwind sanctions on Russia at the same time as the EU is implementing more restrictive measures comes as another signal of the widening and increasingly bitter divergence on the war in Ukraine between Washington, D.C., and European capitals. President Donald Trump's comments regarding Ukraine's Volodymyr Zelenskyy on 19 Feb led to the closest many European leaders have come to directly criticising the US president since he came to office one month ago. 

MNI US: Trump's Aluminium Tariffs Will Cover 123 products - Nikkei

Nikkei reporting that a 25% tariff on aluminium products announced by US President Donald Trump, which could go into effect on March 12, will cover 123 products, including chipmaking equipment parts and aircraft components. The report provides clarity to the proposed tariffs following a White House proclamation stating that tariffs would cover more derivative products, without offering a list of affected products. A similar number of derivative products are likely to be impacted by an accompanying 25% tariff on steel imports. 

MNI CHINA-RUSSIA: Wang And Lavrov Promise Closer Cooperation In 2025

Chinese Foreign Minister Wang Yi and Russian Foreign Minister Sergei Lavrov promised closer bilateral cooperation in 2025, following a meeting on the margins of the G20 Foreign Ministers meeting in Johannesburg, South Africa. TASS reports that the pair will meet again "soon" in Moscow. "We have arranged for your visit to Moscow. Our next meeting will take place in the Russian Federation," Lavrov said. Per Reuters, Wang said: "China willing to further advance China-Russia relations in the new year," with Lavrov stating: "Russia [is] willing to work with China to strengthen high-level exchanges, others."

MNI EU-RUSSIA: Polish PM-Finance Aid For Ukraine Using Frozen Russian Assets

Polish PM Donald Tusk posts on X "Enough talking, it’s time to act! 1. Let’s finance our aid for Ukraine from the Russian frozen assets. 2. Let’s strengthen air policing, the Baltic sentry and the EU borders with Russia. 3. Let’s swiftly adopt new fiscal rules to finance the EU security and defence. Now!" The use of frozen Russian assets held within the EU to fund Ukraine's reconstruction has long been a sensitive topic. Around EUR300B of frozen Russian assets are held by Belgium's Euronext, and there have been reports recently that EU national leaders are considering using these funds directly, rather than the windfall profits that have come from these assets over the past three years.

MNI US-EU: Trade Commissioner-"Tariff Reciprocity Must Work For Both Sides"

European Trade Commissioner Maroš Šefčovič speaking on his visit to the US where he is meeting with senior officials in an effort to avoid the further escalation of trade tensions. Wires quote Šefčovič saying he is seeking "common ground in talks with the US...we need to focus on positive momentum in trade talks". Šefčovič: "Overall US tariffs are slightly higher than EU tariffs...[we] saw some US openness to lowering tariffs."

MNI US TSYS: Yields Decline on Terming Out Comments, Policy High Uncertainty

• Treasury futures look to close near moderate session highs Thursday, gaining it's first strong bid ahead of the NY open when Tsy Sec Bessent suggested the terming out of US debt is still "a long way off".
• Bessent also commented on Russia sanctions: "If we need to, [we] will take off Russia sanctions", adding that the US is "ready for a ramp-up or wind down" of sanctions.
• Tsys extended session highs around midmorning after Atlanta Fed President Bostic cited high uncertainty over Trump administration policy changes triggered heavy selling in bank stocks.
• Not as busy as volumes suggest: heavy roll volumes in March to June Tsy futures (June takes lead quarterly next week Friday). March 10Y futures trade 109-05 (+6.5) after the bell, inside technical levels: resistance above at 110-00 (High Feb 7 and the bull trigger), support well below at 108-04/00 (Low Feb 12 / Low Jan 16).
• Negative sentiment for the dollar has been the key theme in G10 currency markets Thursday, with the ICE dollar index currently down 0.68% and pressing to fresh pullback lows below 1.0650.
• Friday focus on S&P flash PMI data at 0945 followed by UofM sentiment and existing home sales data at 1000ET.

OVERNIGHT DATA

MNI US DATA: No Surprises In Jobless Claims Report

Jobless claims were close to expected, with initial claims pointing to no sign of deterioration from last month’s payrolls reference period (at a healthy level), and unsurprisingly no sign of an increase from DOGE cuts.

• Initial claims increased to 219k (sa, cons 215k) in the week to Feb 15 after an upward revised 214k (initial 213k).
• The four-week moving average dipped 1k to 215k for its lowest, a little further below the 218k averaged in 2019 that we often compare to for a previous period of labor market tightness.
• With this being the first reading at the week that coincides with the payrolls reference period for February, the 219k is close to recent reference periods including 223k for Jan, 220k for Dec and 215k for Nov.
• Continuing claims meanwhile increased to 1869k (sa, cons 1868k) in the week to Feb 8 after a downward revised 1845k (initial 1850k). The 1900k from mid-Jan remains the highest since late 2021.
• Within the details for those looking for DOGE cut impacts, there was unsurprisingly no notable increase in initial claims in Maryland, Virginia and Washington DC whilst continuing claims inched higher but at an orderly pace and firmly within recent ranges (see our 0806/07ET bullets on the matter, and how these would only show if contractors reliant on federal government were pushing for layoffs).

MNI US DATA: Philly Fed Points To Strong Activity, But Rising Prices And Uncertainty

The Philadelphia Fed's Manufacturing Business Outlook Survey diffusion index for current general activity came in a little higher than expected in February, at 18.1 (14.3 expected, 44.3 prior). But consistent with other surveys conducted this month, the Philly Fed internals suggested stronger price pressures and greater uncertainty about the outlook.

• While the 26.2 point dropoff versus January was sizeable, this should be considered in the context of January's 55.2 point rise, which was the 2nd highest in series history (June 2020 set a record with a 71.3 point improvement). January aside, February's would have been the highest reading since March 2022.
• However, the current indicators looked somewhat more solid than the forward-looking metrics. Shipments pulled back to 26.3 from 41.0 - other than January, still the highest reading since 2022. New orders fell 21 points to 21.9, again robust by historical comparison (again aside from January it would have been a 39-month high). But employment dipped 6.6 points to 5.3, and the 6-month outlook index dropped 18.5 points to 27.8, a 5-month low. Expected capex collapsed to 14.0, a 6-month low, from a post-2021 high 39.0 in January.
• We note that the Empire Manufacturing survey for February - which MNI thought showed signs of concern over tariffs on neighboring Canada - also saw a sharp drop in the 6-month outlook and a slip in employment. And just as the Empire Manufacturing survey earlier in the week showed multi-year high price pressures for New York State firms, the Philly survey saw current prices paid rise to 40.5 (28-month high) and prices received to 32.9 (27-month high).
• Unlike the Empire State, expected 6-month prices paid dipped slightly, to 68.6 (vs 67.3 prior), with expected prices received also down to 46.1 (vs 53.6 prior), though these remained elevated readings versus those seen in 2023-early 2024.
• Again, it's unclear to what degree tariffs are playing a part. But overall while regional manufacturing activity looks solid in early 2025, there is elevated uncertainty, with the survey suggesting mounting price pressures in the pipeline.

MARKETS SNAPSHOT

Key market levels of markets in late NY trade:
DJIA down 494.14 points (-1.11%) at 44132.76
S&P E-Mini Future down 32 points (-0.52%) at 6131
Nasdaq down 123 points (-0.6%) at 19932.78
US 10-Yr yield is down 3.1 bps at 4.5014%
US Mar 10-Yr futures are up 6/32 at 109-4.5
EURUSD up 0.0075 (0.72%) at 1.0498
USDJPY down 1.77 (-1.17%) at 149.7
WTI Crude Oil (front-month) up $0.32 (0.44%) at $72.57
Gold is up $3.42 (0.12%) at $2936.78

European bourses closing levels:
EuroStoxx 50 down 0.14 points (0%) at 5461.03
FTSE 100 down 49.56 points (-0.57%) at 8662.97
German DAX down 118.98 points (-0.53%) at 22314.65
French CAC 40 up 12.04 points (0.15%) at 8122.58

US TREASURY FUTURES CLOSE

3M10Y -1.522, 18.493 (L: 16.67 / H: 20.839)
2Y10Y -2.929, 23.151 (L: 22.778 / H: 26.697)
2Y30Y -2.298, 47.089 (L: 46.505 / H: 50.608)
5Y30Y -0.186, 39.731 (L: 39.077 / H: 41.103)
Current futures levels:
Mar 2-Yr futures up 0.375/32 at 102-24 (L: 102-23.375 / H: 102-25.12)
Mar 5-Yr futures up 3.5/32 at 106-15 (L: 106-12 / H: 106-17.25)
Mar 10-Yr futures up 6/32 at 109-4.5 (L: 108-30.5 / H: 109-08)
Mar 30-Yr futures up 11/32 at 114-31 (L: 114-18 / H: 115-05)
Mar Ultra futures up 13/32 at 119-24 (L: 119-04 / H: 120-00)

MNI US 10YR FUTURE TECHS: (H5) Technical Parameters Unchanged

• RES 4: 110-25   High Dec 12
• RES 3: 110-19   76.4% retracement of the Dec 6  - Jan 13 bear leg  
• RES 2: 110-14   High Dec 14
• RES 1: 110-00   High Feb 7 and the bull trigger
• PRICE:‌‌ 109-01 @ 11:16 GMT Feb 20
• SUP 1: 108-04/00 Low Feb 12 / Low Jan 16 
• SUP 2: 107-06   Low Jan 13 and the bear trigger
• SUP 3: 107-04   Low Apr 25 ‘24 and a key support
• SUP 4: 106-11   2.00 proj of the Oct 1 - 14 - 16 price swing  

Treasury futures recovered well off the intraday low of 108-21+ posted on Wednesday, keeping the price clear of any test on 108-04 support. As such, technical parameters remain broadly unchanged: any further gains would expose key resistance and the bull trigger at 110-00, the Feb 7 high. For bears, recent weakness resulted in a break of 108-20+, the Feb 4 low, signalling the end of the correction between Jan 13 - Feb 7. Moving average studies highlight a dominant downtrend. A resumption of weakness would open 108-00, Jan 16 low, and expose 107-06, Jan 13 low and bear trigger.

SOFR FUTURES CLOSE

Mar 25 +0.013 at 95.695
Jun 25 +0.015 at 95.815
Sep 25 +0.015 at 95.930
Dec 25 +0.015 at 96.005
Red Pack (Mar 26-Dec 26) +0.010 to +0.020
Green Pack (Mar 27-Dec 27) +0.025 to +0.030
Blue Pack (Mar 28-Dec 28) +0.035 to +0.035
Gold Pack (Mar 29-Dec 29) +0.040 to +0.040

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
​​​​​​​
SOFR Benchmark Settlements:

• 1M +0.00211 to 4.32232 (+0.00867/wk)
• 3M -0.00144 to 4.32859 (+0.00560/wk)
• 6M -0.00167 to 4.30501 (-0.00598/wk)
• 12M -0.00106 to 4.24442 (-0.03045/wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.35% (-0.02), volume: $2.394T
• Broad General Collateral Rate (BGCR): 4.33% (-0.01), volume: $928B
• Tri-Party General Collateral Rate (TCR): 4.33% (-0.01), volume: $914B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $95B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $255B

FED Reverse Repo Operation

RRP usage recedes to $63.207B this afternoon from $73.196B on Wednesday. Compares to last Friday's $58.770B - the lowest level since mid-April 2021. The number of counterparties at 23.

MNI PIPELINE: Corporate Bond Issuance Update: $1.75B Raizen 2Pt Launched

• Date $MM Issuer (Priced *, Launch #)
  • 02/20 $3B #Qatar $1B 3Y +30, $2B 10Y +45
  • 02/20 $Benchmark PACCAR Financial 3Y +30
  • 02/20 $1.75B #Raizen Fuels Finance $1B 12Y +225, $750M 30Y +250
  • 02/20 $750M #Westpac New Zealand 5Y +60
• $17.7B Priced Wednesday, $45.3B/wk
  • 02/19 $5B *Cisco $1B 3Y +30, $1B 5Y +40, $1B 7Y +50, $1.25B 10Y +58, $750M 30Y +75
  • 02/19 $5B *Barclays $1.25B 4NC3 +80, $1.75B 6NC5 +100, $2B 11NC10 +125
  • 02/19 $2B Hershey $500M each: 3Y +28, 5Y +42, 7Y +52, 10Y +62
  • 02/19 $1.5B *Huntington National Bank $1B 3NC2 +58, $500M 3NC2 SOFR+72
  • 02/19 $1B *Kraft Heinz $500M 7Y +77, $500M 10Y +87
  • 02/19 $1B *Expedia 10Y +95
  • 02/19 $700M *DR Horton +10Y +97
  • 02/19 $500M *Golub Capital 5Y +175
  • 02/19 $500M *Auto Nation 10Y +133
  • 02/19 $500M *Rollins 10Y +90

MNI BONDS: EGBs-GILTS CASH CLOSE: Bull Steeper On Late Rally

A late rally in global bonds saw core European curves lean bull steeper modestly Thursday.

• Yields were mixed in early trade but leaned higher, with Spanish and French supply helping weigh.
• But those auctions were digested smoothly and weakness was pared by after Treasury Secretary Bessent noted no immediate plans to extend the maturity profile of US government bonds.
• Subsequently, a risk-off rally in core EGBs/Gilts following news that a Ukraine-U.S. press conference had been cancelled saw core yields hit session lows as equities pulled back sharply.
• Implied ECB cut pricing for the remainder of 2025 increased 2bp on the day (74bp); BOE was flat at 52bp - at one point earlier in the session, implied cuts had been pared by about 2bp apiece.
• Mirroring the above moves, periphery EGB spreads closed flat/slightly tighter. French OAT spreads widened modestly.
• Friday's focus will be flash February PMIs, though we also get significant UK-specific data in the form of retail sales and public sector borrowing. There is also an appearance by ECB's Lane.

Closing Yields / 10-Yr EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 2.5bps at 2.153%, 5-Yr is down 2.4bps at 2.303%, 10-Yr is down 2.3bps at 2.534%, and 30-Yr is down 1.4bps at 2.789%.
• UK: The 2-Yr yield is down 1.2bps at 4.265%, 5-Yr is down 0.9bps at 4.296%, 10-Yr is down 0.4bps at 4.607%, and 30-Yr is up 0.5bps at 5.2%.
• Italian BTP spread down 0.2bps at 108.2bps / French OAT up 0.6bps at 73.3bps  

MNI FOREX: Greenback Extending Losses, USDJPY Declines 1.35%

• Negative sentiment for the dollar has been the key theme in G10 currency markets Thursday, with the ICE dollar index currently down 0.68% and pressing to fresh pullback lows below 1.0650.
• Most notable has been the move for USDJPY, sinking 1.35%. The pair has been under considerable pressure on a break of the bear trigger at 150.93, as bearish sentiment for the greenback and bolstered tightening expectations for the BOJ compliment both sides of the trade.
• BoJ Governor Ueda stated he didn't discuss rising JGB yields with PM Ishiba at their regular meeting to discuss economic matters, with some analysts suggesting some comfort around the broader tightening BoJ backdrop, bolstering the Yen. A close at current levels would resume the bear cycle that started on Jan 10th, opening 148.65, the Dec 3 low and a key support. Below here, attention will be on 148.01, the Oct 9 low.
• Amid the broad dollar weakness, AUD and NZD have also performed well, with both rising close to 1%. AUDUSD has printed above 0.6400 for the first time since December 12, narrowing the gap with key resistance ahead at 0.6414 - marking both the 100-dma as well as the 38.2% retracement of the Sep 30 ‘24 - Feb 3 bear leg. 0.9429 and 0.6471 are the next levels on the topside.
• EURUSD and GBPUSD have not been immune to the broader trends, as the former claws its way back to the 1.05 handle. For cable, we have risen above 1.2650, underpinning the current technical uptrend. A continuation higher would place attention on 1.2767, the 50.0% retracement of the Sep 26 ‘24 - Jan 13 bear leg.
• RBA Governor Bullock speaks in the APAC session Friday, before the focus turns to Japan National CPI data. In Europe, UK retail sales and Eurozone flash PMIS headline the docket. In North America, Canadian retail sales and US PMIs are scheduled.

FRIDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
21/02/2025	0700/0700	***	GB	Public Sector Finances
21/02/2025	0700/0700	***	GB	Retail Sales
21/02/2025	0745/0845	**	FR	Manufacturing Sentiment
21/02/2025	0815/0915	**	FR	S&P Global Services PMI (p)
21/02/2025	0815/0915	**	FR	S&P Global Manufacturing PMI (p)
21/02/2025	0830/0930	**	DE	S&P Global Services PMI (p)
21/02/2025	0830/0930	**	DE	S&P Global Manufacturing PMI (p)
21/02/2025	0900/1000	***	IT	HICP (f)
21/02/2025	0900/1000	**	EU	S&P Global Services PMI (p)
21/02/2025	0900/1000	**	EU	S&P Global Manufacturing PMI (p)
21/02/2025	0900/1000	**	EU	S&P Global Composite PMI (p)
21/02/2025	0930/0930	***	GB	S&P Global Manufacturing PMI flash
21/02/2025	0930/0930	***	GB	S&P Global Services PMI flash
21/02/2025	0930/0930	***	GB	S&P Global Composite PMI flash
21/02/2025	1330/0830	**	CA	Retail Trade
21/02/2025	1330/0830	**	US	WASDE Weekly Import/Export
21/02/2025	1330/0830	**	CA	Retail Trade
21/02/2025	1430/1530		EU	ECB's Lane Speech at FIW-Research Conference
21/02/2025	1445/0945	***	US	S&P Global Manufacturing Index (Flash)
21/02/2025	1445/0945	***	US	S&P Global Services Index (flash)
21/02/2025	1500/1000	***	US	NAR existing home sales
21/02/2025	1500/1000	*	US	Services Revenues
21/02/2025	1500/1000	**	US	U. Mich. Survey of Consumers
21/02/2025	1630/1130		US	Fed Vice Chair Philip Jefferson
21/02/2025	1630/1130		US	San Francisco Fed's Mary Daly
21/02/2025	1730/1230		CA	BOC Governor speech/press conference.