US TSYS: Sell-Off Extends, Outperforming EGBs Pre-ECB
Dec-12 11:44
- Treasuries have extended yesterday’s second half sell-off and have now easily more than reversed the initially dovish reaction to US CPI across all major tenors.
- They follow sizeable downward pressure in EGBs where Italian supply has offered an additional headwind. China stimulus plans from the CEWC readout hasn’t had a material impact on Treasuries
- Away from potential spillover from the ECB decision at 0815ET, today’s focus is firmly on US PPI inflation and weekly jobless claims (see more detail in STIR bullet) before attention turns to the 30Y reopen after a strong 10Y yesterday.
- Cash yields are 2.1-2.5bp higher with 10s earlier breaching 4.30% (high 4.3023%) for the first time since Nov 26/27.
- 2s10s is back unchanged on the day at 12bps as it consolidates yesterday’s renewed steepening, off 13.3bps earlier for its steepest since Nov 20.
- TYH5 has been on and off session lows of 110-16 (-06) for two hours now, on slightly higher cumulative volumes of 270k after particularly weak overnight sessions earlier this week.
- The recent pullback has extended, coming closer to support at 110-11+ (50% retrace of Nov 15 – Dec 6 bull cycle) after which lies 110-02 (61.8% retrace). Resistance is seen at 111-07 (Dec 11 high).
- Data: PPI Inflation Nov (0830ET), Weekly jobless claims (0830ET), Household net worth Q3 (1200ET)
- Note/bond issuance: US Tsy $22B 30Y Bond reopen - 912810UE6 (1300ET)
- Bill issuance: US Tsy $80B 4W & $75B 8W bill auctions (1130ET)
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EURUSD: Parity Risks Loom Large in '25
Nov-12 11:41
- EUR/USD's fresh pullback low at 1.0611 today equates to a near 3% sell-off since the election results last week and a >5% downleg off the YTD high at 1.1214. This keeps alive the speculation that EUR/USD could hit parity under an adverse trade war scenario or a particularly hawkish turn from the Fed.
- While markets see little likelihood of EUR/USD testing that mark in the near-term, but the risk picks up materially thereafter.
- Just $650mln notional has traded in EUR/USD vanilla put options with a strike at 1.00 or below since November 1st on the DTCC - a relatively meagre % of the $300bln market this month. This providies little concrete evidence of the market's focus on parity just yet - reflected in premiums pricing just a 2.3% chance of payoff for a EUR/USD 1.00 one-touch option expiring on Dec31 this year.
- We wrote last week that speculation of parity is building, however. The risk becomes much more apparent further down the curve and into the Trump admin's first few months. Compounding this effect, the implied Fed-ECB rate differential has grown considerably for Jun'25, from ~40bps to ~130bps in six weeks.
- As a result, markets now price a 24% chance of touching parity by end-Jun'25, up from 9.6% ahead of the election/German government breakdown.
BUNDS: /SWAPS: ASWs A touch Wider On Politics & Data, Moves Limited
Nov-12 11:41
Clarification of the German election timeline (confidence vote on December 16, subsequent election on February 23) and the soft German ZEW data promotes modest ASW widening today, 3-month Euribor spreads 0.5-0.8bp higher last.
- Moves back above 0bp in Bund vs. 3-month Euribor ASW remain shallow and short-lived.
- Sell-side names remain cautious when it comes to the idea of wideners, with the medium-term drivers of the structural narrowing intact (grater collateral availability owing to issuance needs/free float and receiver-side flows in swaps, linked to continued ECB easing).
US TSYS: Cash Treasuries Resume, Ylds Rising Ahead Busy Fed Docket, SLOOS Later
Nov-12 11:41
- Cash Treasuries return after extended Veterans Day holiday, yields higher but off early London session highs (2s +.0547 at 4.3086%, 10Y +.0526 at 4.3569%).
- Treasury futures near steady in the short end vs modestly lower levels out the curve amid improving volumes: Dec'24 10Y -1.5 at 109-27.5 vs. 109-24 low on just over 370,000 contracts currently traded. Initial technical support holds at 109-07, last week's Nov 6 low and bear trigger. Curves remain under modest flattening pressure: 2s10s -.190 at 4.636, 5s30s -2.307 at 25.321.
- US data resume, higher than expected NFIB Small Business Optimism just reported at 93.7 vs. 92.0 est, 91.5 prior. Regional NY Fed 1Y inflation expectation release at 1100ET. Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) release this afternoon at 1400ET. US Tsy bill auctions $81B 13W, $72B 26W at 1130ET, $80B 42D CMB auction at 1300ET.
- But main data focus remains on Wednesday's CPI and Thursday's PPI.
- Fed speakers return with busy schedule ahead: Fed Gov Waller moderated discussion bank conf at 1000ET, Richmond Fed Barkin summit discussion (text, Q&A) at 1015ET, MN Fed Kashkari moderated discussion (no text, media Q&A) at 1400ET, Philly Fed Harker on Fintech & AI (text, Q&A) at 1700ET while Richmond Fed Barkin is expected to answer more questions at an economic development conf at 1730ET.
- Cross market roundup: crude rebounds from Monday's sell-off (WTI +0.63 at 68.67), Gold adds to Monday's sharp decline (-20.60 at 2,598.22), USD gaining - extending higher.
