The beginning of the end of the year...
'while we slept' (20s found SUPP -- i'm tellin' you there's *always* a chance); 30yy WEEKLY TREND(less momo) and travels (un)planned...
First, a few early comments about what did / didn’t happen while we slept
… Treasuries are modestly lower and the curve steeper modestly steeper out to 10's ahead of today's data slate. DXY is basically UNCHD while front WTI futures are too. Asian stocks were higher, EU and UK share markets are to while ES futures are +0.25% here at 6:36am. Our overnight US rates flows saw only $200mln 10yrs traded in the broker market during Tokyo hours with overall volumes there just 20% of average. Desk colleagues reported ongoing Asian real$ interest to buy the long-end. Overnight Treasury volume that includes London's AM hours shows ~35% of average volume this morning….
Emphasis MINE and is what you’d expect this time of year. The same outfit included a reasonbly interesting chart of 20s vs 10s30s for those bond market degenerates kicking around the next few days with nothing better to do
UST 10s20s30s 'fly, daily: A new 'barrier of demand' for 20's on curve appears to be emerging near the 51bp(6 probes of the level this month; all rejected) so that's a new topside resistance we'll keep an eye on going forward. And after Tuesday's successful 20y auction and some good/predictable post-auction outperformance... we illustrate why the42bp area (large cluster of opening/closing lows in November) may be a support level for this 'fly where the infidels might want to take another anti-20's shot?
Clearly a dip that is NOT on today’s list of clear and present ‘dangers’ although, the economic input list is beefed up due to holidays SO … I’m sayin’ there’s ALWAYS a chance.
AND here are a few words about (overseas and US) FI markets via MNI
Weaker Ahead Of The Holidays
Global fixed income is trading decisively weaker Thursday, on the last pre-holiday trading session for US fixed income (early close today too) and most European bonds.
Gilts are leading the way lower alongside a stronger GBP, with the UK gov't set to avoid announcing lockdown restrictions ahead of Christmas.
Elsewhere, in Bunds and Treasuries, a bit of bear steepening. BTPs bucking the risk-on trend, underperforming both Bunds and the rest of the periphery.
Not much in the way of market-moving headlines in the morning, but a fairly heavy US data slate ahead of Friday's holiday: jobless claims, durable goods and PCE among them.
… And they end with an economic calendar LOOK AHEAD
Next, from BBG econ dept offering some technical analysis
U.S. Eco Brief: UST Curve May Steepen as Fed Move Done
Weekly technical analysis of the two-year/10-year Treasury yield curve suggests it could steepen, which goes against Bloomberg Intelligence's fundamental view that an active Federal Reserve will flatten the curve. The 10-year yield looks squarely in a range going into 2022, while the two-year note targets a cyclical high near 2%.
The 10-year Treasury yield remains within two primary ranges. The near-term range is bound by the October and November yield high of 1.7%, a break of which would target the 2021 high of 1.78%, which is also the 50% Fibonacci retracement of the 2018 to 2020 rally. A break above 1.78% targets the late-2019 yield high that was tested and held for half a dozen weeks, of 1.97%, which is near BI's end-of-2022 base scenario.
A move below the recent yield lows of 1.33% could spur a rally to the summer 2021 yield low of 1.13%, a break of which targets the 23.6% retracement of 1.01%. Should the economy remain strong enough for the Federal Reserve to hike rates, it will be difficult for the market to rally much beyond 1.33% as the yield curve may not invert more than a few basis points.
As the Federal Reserve raises interest rates in 2022, the two-year Treasury note may price for a higher terminal federal funds rate. BI concurs with Bloomberg Economics' view that current terminal-rate pricing is too low. BE views a rate closer to 2.5% as ultimately possible, though BI wouldn't go quite that far. A terminal rate near 2% is BI's base case. This suggests that potentially by the end of 2022, the two-year note yield could reach 2%, which is the level of the downtrend from the late-1994 yield high.
Though BI's base scenario has the two-year yield at 1.31% at year-end 2022, the risk may be it finishes the year even higher. Should there be two or three hikes next year, 2023 market pricing may shift to five hikes, which would give the two-year note scope to move toward 2% in the next 12-18 months.
The 14-week relative strength index on the two-year/10-year Treasury yield curve moved just below 30, though has turned to just above it. Yet RSI remains near levels consistent with past curve-steepening moves, such as the flattest level of 2019 and 2016, when major flattening trends turned. The curve is testing a weekly uptrend from mid-2019 after breaking the 38.2% Fibonacci retracement of the 2014-19 flattening move.
A possible flattening flag may be forming, suggesting if the trend breaks, a move to the 23.6% retracement at 58 bps would be targeted. If the trend holds, the curve could steepen back to 98 bps — the July and November support levels now turned resistance.
No charts. Sorry. Here’s weekly 30yy where I see a TLINE (green arrow) and very directionless momentum (stochastics, bottom panel)
Finally, a couple things that basically sum up how this year is ending … First is this one based on personal experiences at moment and that of friends, family (near/far) regarding travel plans being cancelled (incl those of our travel agent), this chart may be one of THE most under appreciated (save for those at BCA Research who created it)
In as far as my personal experiences referenced above, trying to get ‘Thing 2’ a test out here in NJ which would confirm the ‘at home’ kit results, well, was an absolute dead end.
Speaking of those ‘at home’ kits — anyone ELSE have experience? I mean, prolly EVERYONE else has at this point BUT this about sums up what I thought I was looking at
AND from the NYPost, today’s cover:
Merry merry and a happy health new year to us all! As per visuals and story, travel plans have indeed been cancelled so I may be ‘here’ more than I had hoped. (Un)lucky you…That’s it for now. Off to the day job!