Here is what occurred overnight, or as THEY SAY,
… US News: US raises federal minimum wage to $15/hrAxios US housing: Inventory vanishing and bidding wars exploding in wild start to 2022 BBG Fed officials say higher immigration could ease US labor shortage BBG Milliman: The top 100 US private defined benefit pension plans ended 2021 almost fully funded (99.6%)- the closest to full funding since 2008 Milliman Totally biased, totally funny ZH
WHILE YOU SLEPT
Treasuries are modestly higher with the curve pivoting flatter around an UNCHD ~3yr point. New tactical bull signals have emerged this morning (see attachments)- hinting of an elevated risk of a corrective rebound amid macro bear conditions. DXY is little changed (-0.06%) while front WTI futures are lower (-1.9%). Asian stocks were lower, EU and UK share markets are all lower (SX5E -1.6%) while ES futures are showing -0.45% here at 6:55am. Our overnight US rates flows saw an early Asian bounce in Treasuries that was partly fueled by block buys in FV and UXY futures in a generally risk-off morning there. London's AM flows were subdued with curves little changed from the NY close and UST rates in tight ranges. Selling and paying were an on-balance theme there this morning with HF's adding steepeners again. Overnight Treasury volume was ~110% of average overall with 7yrs (146%) seeing the highest relative average turnover overnight…
But WAIT, there’s MORE, BMOs opening salvo, Doji Star, not Doge-Coin
… On the other hand, the selloff has grown wary – from a technical perspective and the 10-year chart offers a glimpse at what could prove a local yield peak functions as the upper bound for the next few weeks. Specifically, a near-textbook doji star (not dogecoin) pattern was formed on Wednesday as 10-year yields spiked to 1.90%, only to see the open and close match at 1.86%. While the absence of an opening gap for the session stopped short of the formation being classified as an abandoned baby; this is nonetheless a reversal pattern that implies lower yields.
The technical case for avoiding a Friday selloff is strengthened by the curl and cross of stochastics in favor of lower yields. As momentum suggests the initial bearish urgency has run its course, we’re left with the notion of consolidation as the default position until the Fed offers greater clarity in the week ahead. One last technical observation is that while not a pattern per se, the presence of two opening gaps flanking this week’s final bearish surge warrants a nod. Specifically, 1.784% to 1.804% on Tuesday and 1.797% to 1.804% this morning. If nothing else, the 1.804% level holds some near-term relevance as the market continues to ponder whether the repricing to a higher rate plateau has completely run its course …
… Overnight Flows
Treasuries benefited from a modest bid overnight but have retained the bulk of the year-to-date weakness. Overnight volumes were slightly above the recent norms with cash trading at 110% of the 10-day moving-average. 5s were the most active issue, taking a 40% marketshare while 10s were a distant second at 25%. 2s and 3s combined to take 21% at 10% and 11%, respectively. 7s managed 10%, 20s 1%, and 30s just 4%. We’ve seen buying in 10s.
Now that we KNOW and changing lanes a bit … In the ‘build it and they will come’ department, THIS from Bloomberg,
The Weekly Fix: Bonds Buyers Found a Dip; Disrupting Junk Debt
There’s Two Sides to a Trade
Up until the past day or so, the Treasury market has felt like a one-way trade so far this year. But after 10-year yields cracked 1.9% on Thursday -- the highest level since January 2020 -- the bond selloff appears to be taking a breather.
Like so much at the moment, what happens next largely depends on where you think the Federal Reserve is heading. Traders are currently pricing in about four interest-rate hikes this year, kicking off in March. In the eyes of J.P. Morgan Asset Management fixed-income chief Bob Michele, that’s not nearly aggressive enough.
I think the more aggressive thing, which I think they need to talk about, is to end QE now and do the first rate hike and get in eight rate hikes this year, get to a 2% Fed funds rate. This is the kind of thing that’s not priced into bond markets or into any asset class, and when you listen to the Fed, they’re back on their heels, they’re backed into a corner, and they’re coming out swinging.
So how do you position a portfolio around that?
“In this market, you’re supposed to sell any bond market rallies, if you get them,” Michele told Bloomberg’s Jonathan Ferro this week.
So that’s one view, and investors have absolutely been selling bonds of every stripe, from junk debt to Treasuries. But on the other side of the trade, you have the likes of Charles Schwab & Co. chief fixed-income strategist Kathy Jones, who says it’s about time to buy the bond dip as the U.S. economy cools and China slows down:
We’ve been short duration for forever, it seems like, for the last couple of years and we’re actually advocating starting to move into a little bit more duration at these levels because we think the Fed is going to have a little bit more difficulty hiking rates rapidly than the market believes... The expectation is very high for the Fed to hike rates very rapidly, and I don’t think they’ll be able to live up to that in 2022.
In other words,
… Finally, as the week comes to a close, lets go live to DC for an update on the presidents BBB agenda
Have a GREAT start to the end of the week (where WEEKLY CLOSES > daily), and this one stands out to ME and is worth watching, given the dreaded 127 strike,
Finally, one last visual given BIG CHANGES round these parts and our NEW life beginning this past week,
Meet Ollie,