A few overnight thoughts from large sellside global desk who’s comments come as ‘the book’ gets handed off from UK traders TO NY desk on this, the shortest day of the year (aka The Winter Solstice (10:59am),
Treasuries are modestly lower and the curve steeper ahead of this afternoon's 20yr auction (-$4bn from the October reopening total). DXY is modestly lower too (-0.1%) while front WTI futures are higher (+1.5%). Asian stocks were all in the green earlier (NKY +2.1%, SHCOMP +0.9%), EU and UK share markets are all in the green too (SX5E +1.25% and FTSE 100 +0.8%) while ES futures are showing +1% here at 6:30am. Our overnight US rates flows were subdued with better net buying in the long-end seen from Asian real$ despite the rebound in risk markets this morning. After the London crossover FV and UX block trades (2530 in FVH2 and 4120 on UXYH2) hit and both appeared to be sales. Overnight Treasury volume was ~80% of average overall with 20yrs (193%) seeing the highest relative average turnover ahead of today's auction.
Said desk strategist goes on to offer some visuals because, as HE puts it,
… this morning's attachments focus, as is typical for us, is on whatpricesare saying about trend conditions in hand-selected benchmarks. And if you believe as we do that prices 'don't lie,' then we hope that our attachments can offer some trend clarity at a time when the fiscal and Covid narratives are currently being re-written. So what impressed us this morning?
These two stood out to ME
Tsy 10s30s curve, weekly: The medium-term (2mo-4mo, lower panel) winds now strongly at the back of the steepener... A return to the 56bp resistance/pivot during Q1 2022 would not surprise us.
… 10y Gilt yields, daily: 10y Gilts recently held resistance just below 0.70% and now short-term momentum has gone 'hockey stick' in favor of higher yields in the few weeks ahead. We say 'hockey stick' when a rise or fall in price momentum accelerates- as it has today in favor of higher yields.
And NOW back to our regularly scheduled programming of risk ON, BTD all funded BY those in UST market with a bit of a selloff underway … More later but for now, off to the day job.