GILTS: Steepening Extends, Swap Spreads Sell Off

• -6,000 USZ5 118-22, sell through 118-24 post time bid at 1132:28ET, DV01 $780,000.
• The 30Y contract trades 118-22 last (+7)

Spot silver is up 1.1% on the session at $52.5/oz, below Friday’s all-time high of $54.5 and lagging gold intraday. 

• The trend outlook in silver remains bullish for now, with support not seen until the 20-day EMA of $48.736.
• However, the current trend condition is significantly overbought similar to conditions in Jan ‘80 and Apr ‘11. The overbought set-up appears to be a potential bearish threat. A clear break of the $50.00 handle is key to offset any bear threat.
• For a longer-term technical view on silver, see our latest Tech Trend Monitor publication.

Against this backdrop, TD Securities believe that risks to silver now lie on the downside. They think that “the liquidity crisis has likely peaked for the time being, as markets continue to incentivize metal to flow towards London”.  

• TD write that “This is a function of the extreme dislocations observed over the last weeks now becoming self-resolving. With liquidity returning to London markets, we expect the recent breakout to fail, potentially leading to large-scale outflows”.
• While silver's impulsive rally since mid-September has been noteworthy, we highlight that long-term trendline support in the Gold/Silver ratio remains intact. Should this support continue to hold, it may bolster TD Securities' shorter-term risk outlook.

Figure 1: Gold/Silver Ratio Since 2008 (Quarterly). Source: Bloomberg Finance L.P.

Australian Prime Minister Anthony Albanese has arrived at the White House for his first one-on-one meeting with US President Donald Trump since the latter won a second term in office. The two leaders will hold a meeting in the Cabinet Room (changed from the Oval Office at late notice) before a bilateral lunch. A livestream can be found here. 

• Amid China’s imposition of export controls on critical minerals, Australia’s abundant supply could forge strong links between the two leaders, despite hailing from opposite ends of the political spectrum. Indeed, Albanese has brought Minister of Resources Madeline King on the trip to the US, underscoring Canberra's effort to try and court US interest in the country's critical minerals sector.
• Securing the future of the AUKUS submarine pact will be another top aim for Albanese amid speculation the Trump administration could push for greater Australian contributions to the project, or delay the timeline for the provision of three-to-five nuclear-powered submarines. 
• Given the presence of the press pool, there is a strong likelihood that the US president will be drawn on other topics aside from economic and political relations with Australia.