While it is always informative to wake up and see what, if anything, transpired while we slept, it becomes increasingly frustrating to those still around all day and have not much MORE transpire.
In the true spirit of Seinfeld — a show about nothing — some strategists continue to write 2x a day about, well, very little. Here’s one outfit who does this as good / better than most,
USTs drifted flatter while S&P futures rose to ATHs, a low-vol and low-volume risk-on drift flattered by a decent pop in energy prices (CL +2.4%, HG +1.8%) and rise in carry-trades FX (AUDJPY +0.5%, EWZ +1.2%). Intermediate Treasury volumes ran ~60% of the 30d average, while S&P e-minis traded ~650k contracts (vs >2mn on 12/20). Compressing real rates made up the lion’s share of the flattening move beyond >5yrs (30y reals -4.5bps), while the front-end managed a small 2.5bp concession ahead of the 1pm $56bn 2-year auction. In the interim between the US open and main-event auction, the Treasury’s $111 bln in 3- and 6-month bills supply events came and went without much fanfare. Both priced on the screws and garnered decent demand considering the increased volumes ($102 bln on November 1). On the data side of things, the lone Dallas Fed print was marginally disappointing and showed a bit of price-level anxiety in the forward-looking line-items. General Business Activity for the next six months saw a steep decline to 14.0 from 28.6, while Capital Expenditures are expected to weaken (20.6 vs 31.8). The outlook for Wages and Benefits also remained elevated (>42 since June), in line with the view from Citi Economics’ 2022 Outlook that suggests a ‘stickier wage’ regime. At 1pm, the 2-year auction turned out as well as we could have imagined given the circumstances (flattered by the $2 bln reduction)Most impressively, the indirect bid of 61.4% proved the best since June 2009. Dealers holding the ‘short straws’ for today’s holiday-altered auction were likely quite grateful as well, left with just 24.2% of the issue, less than November's 37.2% and the 29.3% 6-auction average. On the follow, 2s traded slightly firmer after nearly re-testing the 0.724% highs from 12/10, while EDZ2 also ticked modestly higher after hitting the 98.915 level that continues to mark significant tactical support from the last two-months (attached).
The commentary was delivered with some visuals and here are 2 I found helpful
US 2y yields: nearly made it back to the 12/10 highs at 0.724% before finding support today, but momentum remains bearish for a potential breakout above said levels. A weekly close >0.73% would setup a continued stair-step move towards the long-term target of 1.30% (pre-pandemic range-lows).
Interesting levels, to be sure. AND Z2, one FedFunds proxy of many avail
EDZ2 contract: retested the late-NOV lows today at 98.915, which continues to represent significant tactical support in the mean-time. A weekly close below would suggest a measured move fall towards the ~98.71 area.
Can’t wait to see WHAT doesn’t happen this evening!