EU-BOND AUCTION PREVIEW: On offer next week

Late on Friday J.P.Morgan recommended a tactical short hedge in 3s to “protect the profits” in their 5s/20s steepener, suggesting that “5s/20s currently appears about 5bp steep adjusted for the level of 3-Year yields”.

• They “have a hard time seeing the case for a deep (Fed) easing cycle. It’s clear that the economy is slowing, but its resilience remains evident”…“Resilience is also being supported by easy financial conditions, as the Fed's Financial Conditions Impulse on Growth index indicates they are a modest tailwind for growth right now”.
• J.P.Morgan go on to flag that “recession risks have declined. Thus, despite an expectation of a more diffuse set of opinions on the FOMC over time, we think it will be challenging to price a more aggressive path for Fed easing unless the labor market loosens decisively from here, given that progress toward 2% core inflation has stalled”.
• As a result, they think “near-term risks skew toward some mean reversion higher in front-end yields over the near term. The biggest risk to this view stems from Chair Powell, as he is slated to speak on the economic outlook at the Jackson Hole Symposium Friday morning. However, with still one more employment and inflation reading ahead of the September FOMC meeting, we do not think the Chair will necessarily pre-commit to or ratify expectations of a cut next month”.

• Treasuries are mildly firmer ahead of today’s geopol-focused session with Oval Office meetings with Trump, Zelenskyy and EU leaders.
• It’s a quiet docket otherwise although a recently notably dovish Bowman is also set to speak on Bloomberg TV.
• Cash yields are 1-2bp lower on the day, paring some of Friday’s slow-to-build post-data losses.  
• 5s30s sits at 108bps having on Friday pushed to a fresh ytd high of 109.4bp.
• TYU5 trades at 111-25 (+05+) to help the late Friday lift off lows of 111-17+, amidst light cumulative volumes of 230k.
• Resistance is seen at 112-15+ (Aug 5 high), having come close with 112-14 before Thursday's PPI report, whilst support is seen at 110-19+ (Jul 24 low).
• Data: NY Fed services Aug (0830ET), NAHB index Aug (1000ET)
• Fedspeak: Bowman on Bloomberg TV (1245ET) – see STIR bullet
• Bill issuance: US Tsy $82B 13W & $73B 26W bill auctions (1130ET)
• Politics (timing as per politico): Trump and Zelenskyy only at 1315ET before Trump, Zelenskyy and EU leaders at 1500ET.

SFIX5 96.20/96.15/96.05 put ladder Vs. SFIZ5 96.00 puts paper paid 0.75 for the put ladder on 2.25K.