EMISSIONS: UKAs DEC25 Implied Volatility Falls to Lowest Since Mid-November

• Treasuries have pared gains to trade mildly twist steeper on decent overnight volumes ahead of a heavier docket with multiple focal points including ADP (0815ET), Treasury's QRA (0830ET) and ISM services (1000ET) – see preview links below.
• Larger gains in early Asia trade were pared with help from a report on a handful of moderate Senate Democrats considering voting to end the government shutdown whilst some colleagues to their left urge them to hold out.
• Odds of the shutdown ending sooner rather than later had improved since Monday with an acceleration in rank-and-file talks aimed at finding an offramp. However, our political risk team cautions that a strong performance in yesterday’s elections may temper optimism by validating Democrats’ assumption that voters approve of Senate Minority Leader Schumer’s hardline strategy to extract concessions on healthcare.
• Cash yields range from 1bp lower to 0.5bp higher.
• TYZ5 trades at 112-27, back to only 2 ticks higher off an overnight high of 113-02 on elevated cumulative volumes of 385k.
• That 113-02 marks new initial resistance although it needs to trade above 113-18+ (Oct 28 high) to signal a possible bullish reversal away from recent lows. Support is seen at 112-16 (Oct 30 low).
• Data: MBA mortgage applications (0700ET), ADP Oct (0815ET), S&P Global serv/comp PMI Oct final (0945ET), ISM services Oct (1000ET)
• Fedspeak: A break in scheduled appearances todayqra
• Bill issuance: US Tsy $69B 17W bill auction (1130ET)
• Politics: Trump delivers remarks at breakfast with Republican Senators (0830ET), Trump delivers remarks at America Business Forum Miami (1300ET)
• MNI QRA preview found here. It predates Monday’s borrowing estimates which were below MNI expectations and at the lower end of most estimates seen. Current quarter borrowing requirements were lowered to $569B from August's $590B estimate and the initial estimate of Jan-Mar requirements saw a slight further uptick to $578B.
• ADP mini preview: See "Private Labor Indicators To Watch Over The Next Two Days" [Nov 4]
• ISM services preview: “Oct ISM Services: Activity Steadying Out At A Weak Level (1/2)” and “Oct ISM Services: Price Gauge Seen At 4-Month Low (2/2)” [Nov 4]

Le Monde reports that PM Sebastien Lecornu is set to offer the centre-left Socialist Party (PS) concessions on the revenue section of the Social Security Financing Bill (PLFSS) in order to ensure its deputies abstain on the vote, securing its approval in the National Assembly, and allowing debate to move onto the expenditure section. On 4 Nov, Lecornu announced a EUR1bln support package for hospitals, while also voicing support for amendments that would eliminate the non-indexation of pensions and social benefits. The PM is also facing pressure from the left and far-right to back down on the doubling of medical deductibles, which could save EUR2.3bln/annum but has been billed as a 'health tax' by opponents. 

• The compromise could see the PS abstain on a vote as soon as the evening of Thursday, 6 Nov or potentially Friday, 7 Nov. As Le Monde notes, the PS' abstention is crucial as "if [the revenue section] is rejected, the section on expenditure cannot be debated, and the PLFSS will be sent directly to the Senate. This would eliminate the much-anticipated suspension of the pension reform if this scenario, which played out in committee, were to be confirmed in the plenary session."
• In the event the revenue section is passed, debate on the expenditure section, including the suspension of the 2023 pension reform, will not take place until next week. A vote would take place on 12 November, the deadline for the PLFSS to be sent to the Senate according to constitutional deadlines. 

• In FX, a bear leg in EURUSD remains intact and Tuesday’s extension reinforces current conditions. The move down maintains the bearish price sequence of lower lows and lower highs. Furthermore, the pair has breached a number of important short-term supports, the most recent being 1.1516, the 76.4% retracement of the Aug 1 - Sep 17 bull leg. This exposes key support at 1.1392, the Aug 1 low. Initial resistance is 1.1542, the Oct 9 low.
• A sharp sell-off in GBPUSD yesterday reinforces bearish conditions. A key support at 1.3142, the Aug 1 low, has recently been cleared. The break confirmed a resumption of the downtrend that started Sep 17. Sights are on 1.2971 next, a 1.382 projection of the Sep 17 - 25 - Oct 1 price swing. Note that the trend is in oversold territory, a recovery would allow this condition to unwind. Initial resistance is at 1.3142, the Aug 1 low.
• The trend condition in USDJPY is unchanged, it remains bullish despite the recent fade off highs. The break higher last week confirmed a resumption of the uptrend and note too that moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 154.80, the Feb 12 high. First important support to watch lies at 152.21, the 20-day EMA. A deeper pullback would be considered corrective.