AUSSIE BONDS: Richer, US Tsys Richer After Weak ISM, Heavy Local Calendar Today
ACGBs (YM +4.0 & XM +4.5) are richer after US tsys rallied ahead of the weekend. Friday’s round of US data was supportive of looser policy as inflation metrics cooled: lower than expected ISM Mfg (47.8 vs. 49.5 est), Prices Paid (52.5 vs. 53.2 est) and New Orders (49.2 vs. 52.7 est); as well as U. of Mich. Sentiment (76.9 vs. 79.6 est).
- US data resumes on Tuesday with S&P Global US Services PMI, ISM Services, Factory and Durable Goods Orders.
- Elsewhere, the BoC is widely expected to keep rates on hold at 5% on Wednesday after it crucially removed a line on being prepared to raise rates further if needed at its January meeting. The ECB is also expected to hold its cash rate steady at 4.5% on Thursday. Eurozone core inflation fell to 3.1% on Friday, a seventh successive monthly fall.
- Cash ACGBs are 3-4bps richer, with the AU-US 10-year yield differential 4bps higher at -7bps.
- Swap rates are 4bps lower.
- The bills strip has bull-flattened, with pricing flat to +4.
- RBA-dated OIS pricing is flat to 4bps softer. A cumulative 39bps of easing is priced by year-end.
- Today the Melbourne Institute inflation gauge for February, Q4 inventories/company profits, February ANZ job ads and January building approvals will be released.
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US TSYS: January Jobs Surge Weighs on Projected Rate Cut pricing
Tsy futures gapped lower after broadly higher than expected Change in Nonfarm Payrolls of +353k vs 185k est (prior up-revised to 333k from 216k), Private Payrolls surge to +317k vs. 170k est. Unemployment Rate 3.7% vs. 3.8% est while Labor Force Participation Rate near steady at 62.5% vs. 62.6% est.
- Futures continued to extend lows after little initial react to UofM and Factory/Durables Order data
- U. of Mich. Sentiment (79.0 vs 78.9 est)
- U. of Mich. Current Conditions (81.9 vs. 83.5 est)
- U. of Mich. Expectations (77.1 vs. 76.0 est)
- U. of Mich. 1 Yr Inflation (2.9% vs. 2.9% est), 5-10 Yr (2.9% vs. 2.8% est)
- Mar'24 10Y futures currently trading -1-06.5 at 111-22. Technical support at 111-16/110-26 Low Feb 2 / Low Jan 19 and bear trigger. Curves remain flatter but well off lows: 2s10s -2.206 at -34.839 (-40.198 low), while 10Y yield remained above 4% at 4.0237% (+.1435) after starting the day around 3.8648%.
- Factory Orders in-line w/ 0.2% vs. est, Ex Trans (0.4% vs. 0.2% vs. est)
- Durable Goods Orders in line w/ 0.0% vs. est, ex Trans (0.5% vs. 0.6% vs. est)
- SOFR futures gapped lower (SFRH4-SFRZ4 -0.080-0.210) while projected rate cut chances retreated: March 2024 chance of 25bp rate cut currently -22.2% vs. -38.7% pre-data w/ cumulative of -5.6bp at 5.263%, May 2024 at -70.6% vs. -90.8% w/ cumulative -23.2bp at 5.087%, while June 2024 at retreated to -87.9% vs. 105% w/ cumulative -45.2bp at 4.867%. Fed terminal at 5.3175% in Feb'24.
US TSYS: Late SOFR/Treasury Option Roundup: Adjusting to Drop in Rate Cut Odds
SOFR and Treasury option remained mixed on heavy volume Friday, accounts adjusting positions after an unexpected surge in January jobs: +353k vs 185k est (prior up-revised to 333k from 216k), Private Payrolls surge to +317k vs. 170k est. SOFR futures gapped lower (SFRH4-SFRZ4 -0.080-0.210) while projected rate cut chances retreated: March 2024 chance of 25bp rate cut currently -22.2% vs. -38.7% pre-data w/ cumulative of -5.6bp at 5.263%, May 2024 at -70.6% vs. -90.8% w/ cumulative -23.2bp at 5.087%, while June 2024 at retreated to -87.9% vs. 105% w/ cumulative -45.2bp at 4.867%. Fed terminal at 5.3175% in Feb'24. Salient trade includes:
- SOFR Options:
- Block, 20,000 SFRU4 95.31/95.43 call spds, 6.5 ref 95.59
- Block, 10,000 SFRU4 94.93/95.37/95.43/95.68 broken put condors, 1.0 net - belly over
- Block, 10,000 SFRM4 95.31/95.43/95.56/95.68 call condors, 1.25
- Block, 5,000 SFRH4 95.50 calls, 1.25 ref 94.795/0.09%
- Block, 5,000 SFRM4 95.37/96.00 call spds, 8.0 ref 95.20
- Block, 5,000 SFRH4 95.00/95.06/95.12 call flys, 0.25 ref 94.795
- +9,000 SFRH4 95.00 calls, 2.5 ref 94.81/0.10%
- Block, 20,000 SFRH4 94.87/95.00/95.12/95.25 call condors, 0.75
- Treasury Options:
- +10,000 FVH4 106 puts, 2.5
- 10,000 TYH4 111.5 puts, 43.0, total volume on nay over 98k
- Block, 10,500 TYM4 111 puts, 105 vs. 111-19/0.16%
- 8,400 TYH4 112.5/113.5 1x2 call spds, 2 ref 111-20.5
- -2,900 TYM4 112 straddles, 318 ref 112-08.5
- 6,000 FVH4/wk2 FV 108.5 straddle spds
- 1,800 FVH4 106.75/107.5/108.25 2x3x1 put flys ref 107-31.5
- 2,300 TYH4 109.5/110.5/111.5 put flys, 10 ref 111-27.5
STIR: BLOCK, Sep'24 SOFR Call Spread
- 20,000 SFRU4 95.31/95.43 call spds, 6.5 ref 95.59 at 1458:32ET
