BONDS: NZGBS: Post-CPI Rally Held Into The Close, Outperforms The $-Bloc
NZGBs closed with a twist-steepening of the curve. Yields closed 3bps lower to 3bps higher on the day and 1-4bps lower than pre-CPI levels after Q3 data printed on the downside of expectations. Headline CPI showed +1.8% q/q and +5.6% y/y versus estimates of +1.9% and +5.9% and prior +1.1% and +6.0%.
- Tradable and non-tradeable inflation also printed on the downside of expectations at +1.7% q/q and +1.8% q/q respectively versus estimates of +1.8% and +2.4% and prior +1.3% and +0.8%.
- NZ-US and NZ-AU 10-year yield differentials closed 5bps tighter on the day at +68bps and +87bps respectively.
- Non-Resident Bond Holdings dipped to 62.1% in September from 62.4% in August.
- The post-CPI rally defied the prevailing bearish mood in today's Asia-Pac session. US tsys are flat to 3bps cheaper compared to their NY closing levels.
- Swap rates closed 1-9bps lower than pre-CPI levels. The 2s10s curve twist-steepened on the day, with rates 5bps lower to 4bps higher.
- RBNZ dated OIS pricing shunted 5-9bps softer in post-CPI dealings, with terminal OCR expectations 7bps softer on the day at 5.65%.
- Tomorrow, the local calendar is empty. The next key release will be the September Trade Balance data on Friday.
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US TSYS: Yields Higher Ahead Expected Steady FOMC With Tightening Bias Next Week
- US FI markets look to finish weaker across the board Friday, inside a generally narrow session range after scaling back support overnight.
- Weakness came after a hawkish ECB sources story in the FT overnight sapped risk appetites ahead the weekend. Markets had traded positively after Thursday's ECB rate hike messaging was deemed less hawkish at the time. Focus is on next Wednesday's FOMC announcement where the Fed is expected to hold rates steady while maintaining a tightening bias.
- Modest data driven volatility in the first half: Treasury futures extended lows, TYZ3 marks 109-12.5 (-11.5) before drawing some buy interest after NY Fed data show persistent inflation pressures. Import Price Index MoM (0.5% vs. 0.3% est, prior down-revised to 0.1%), Export Price Index MoM (1.3% vs. 0.4% est, prior down-revised to 0.5%) while Empire Manufacturing climbs to 1.9 vs. -10.0 est.
- Treasury futures bounced off session lows after UofM data shows softer inflation expectations: 1 Yr Inflation 3.1% vs. 3.5% est, 5-10 Yr Inflation 2.7% vs 3.0% est. Futures saw sporadic sell interest as TYZ3 climbed to 109-28.5 (+4.5). Curves holding steeper profiles after the bell: 3m10Y +3.338 at -115.408, 2Y10Y +1.304 at -71.637.
- Quiet start to next week with NY Fed Services, NAHB Housing Market Index and TIC Flows.
JGB TECHS: (Z3) Support Has Been Breached
- RES 3: 149.75/150.81 - High Nov 11 / High Aug 5 2022
- RES 2: 149.21/53 - High May 12 / High Mar 22
- RES 1: 146.41 - High Sep 4
- PRICE: 145.58 @ 18:11 BST Sep 15
- SUP 1: 145.38 - Low Sep 12
- SUP 2: 144.39 - 1.0% 10-dma envelope
- SUP 3: 144.15 - Low Jan 13 and a major support
JGBs sold off sharply on Sep 11 and the contract has traded through support at 145.49, the Aug 17 low. A clear break of this area would confirm a resumption of the medium-term downtrend and pave the way for weakness towards 144.39, the lower band of a MA envelope study. On the upside, clearance of 146.41, the Sep 4 high would instead highlight a base and a possible short-term reversal.
US TSYS: SOFR/Treasury Option Roundup Leans Toward Downside Puts
With few exceptions, SOFR/Treasury option trade centered on low delta puts and put spreads Friday as underlying futures traded weaker, see-sawing near the low end of Friday's session range. Rate hike projections through year end cooled: Sep 20 FOMC is 3.8% w/ implied rate change of +0.09bp to 5.338%. November cumulative of +8.2p at 5.410, December cumulative of 11.1bp at 5.439%. Fed terminal at 5.435% in Jan'24.
- SOFR Options: Reminder, Sep SOFR options expire today
- Update, total 6,000 SFRH4 94.56/94.62/94.68/94.75 put condors
- +5,000 SFRH4 98.00/98.25 call spds, 2
- Block, 10,000 SFRZ3 94.68/94.94/95.18 call flys, 0.75 ref 94.535
- over 3,100 SFRM4 95.50/97.00 call spds ref 94.90
- 2,260 SFRU3 94.75 puts, 15.0 last
- 2,890 SFRX3 94.37 puts, 1.5 last
- 1,800 SFRX3 94.18/94.43 put spds
- Treasury Options:
- 2,000 TYX3 112/114 call spds vs. TYZ3 112.5/114 call spds
- 4,000 FVX3 105/105.75 put spds ref 105-29.5
- 2,400 TYX3 115.5 calls, 1 ref 109-14
- 2,400 TYX3 111.5 calls, 17 ref 109-13.5
- 2,100 FVV3 106.5/FVX3 106 put spd
- 2,200 TYX3 108.5 puts
- 1,500 TYV3 108/109 2x1 put spds, 10 ref 109-14.5
- over 5,100 FVV3 105.5 puts, 7 ref 105-30.75
- over 6,300 TYV3 109 puts, 13 last
- 1,700 TYX3 109 puts, 38 ref 109-16.5
- 1,000 FVZ3 104.5/105.25/106 put trees ref 106-00.25
- over 7,100 USV3 117 puts, mostly 13 ref 118-25
- 1,500 TYX3 111.5/113 call spds ref 109-27.5
