while we slept; Earl DOWN; rate PAIN FROM HIGHER higher 'flation barely begun -Greg Ip; a good 20yr auction
Good morning … I was going to lead with a recap of that better-than-good 20yr auction but I just couldn’t. Skip down below for more on that and generally speaking, the selloff was in fact, a concession,
Looking at the selloff in somewhat greater context — 30yy DAILY — I’d suggest we’ve still got some ‘wood to chop’ before indicators such as slow stochastics (bottom panel) suggest long bonds are cheap, screamin’ BUY, but …
50dMA 3.157% as we have some relief (NS1) and continued chaos — Draghi OUT,
Only thing left as far as ‘excitement’ today is … the ECB so ahead of that, here is a snapshot OF USTs as of 715a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasury yields and curves are little changed this morning ahead of the ECB while the energy, grain and industrial metals markets have taken another leg lower today. DXY is UNCHD while front WTI futures are -4.6% at press time. Asian stocks were mixed (China linked markets lower, most others higher), EU and UK share markets are little changed while ES futures are showing -0.17% here at 7am. Our overnight flows saw a tight range during Asian hours that featured good real$ buying in the front end, modestly bull-steepening the curve then. During London's morning the chop-fest continued with the BTP-Bund 10y switch 20bp wider at their open on the Draghi news. Overnight Treasury volume was ~90% of average overall with relatively elevated turnover seen in 2yrs (140%) and in 5's (125%).… We were on a call yesterday and one of my Rates Research colleagues noted that, perhaps predictably, energy prices have a meaningful impact on changes in the long-term inflation expectations that the Fed has recently fretted over. So our first attachment today is our attempt to back-up that assertion where the longer-term correlation (front WTI futures versus U-Michigan 5-10yr inflation expectations) indeed looks pretty decent. In turn, we next look at the shorter-term chart of front crude (CL1) where you can see how a pretty solid range support band has emerged just above $94/bl. We're making quick tracks to that support this morning (CL1 -5%) and we'd expect, given the nature of these price patterns, that if range support gives way at a close... that the scamper lower could be a swift one. We'd spot next support for front WTI futures near $84.90- the Q4 2021 range highs.
… and for some MORE of the news you can use » IGMs Press Picks for today (21 July) to help weed thru the noise (some of which can be found over here at Finviz).
Clearly one of the more important stories of the day is today’s 1st story on IGM LINK,
Russia Resumes Nord Stream Gas Supply to Europe - WSJ The restart of the pipeline buys time for governments to decouple from the Kremlin's exports amid what they expect will be an increasingly unreliable supply of energy.
Well THAT was a decent 20yr auction result, if I don’t say. And to be sure, no longer in that front-row seat, I DON’T but those who are, did
Jefferies: 20-Year Bond Reopening Results: 2.9bp Short Stop, Strong Stats After Big Concession
… This auction is $2 bln smaller than the last set of reopenings and $10 bln smaller than the peak size of reopenings. The size of the 20-year auctions has come down dramatically over the last ten months which has helped to clean up the bidding process significantly. Bidding stats were quite strong in a vacuum, but the 20-year point continues to struggle on an outright basis. The auction stopped short, but only because of a selloff/concession in the market ahead of time. Also, the auction could have stopped 20 bps short, and it would still be cheap to the 30-year bond. In spite of better auction statistics, the problems with the 20-year point on the curve remain profound…
But what do THEY know … ZH:
… But it was the internals that were absolutely stellar, with Indirects taking down a record 78.0%, and with Directs awarded 14.1%, meant that Dealers were left holding just 7.9%, the lowest on record.
INDIRECTS — commonly thought to be ‘foreigners’ might be getting some assistance from a new up-and-coming class of investors …
OR … Perhaps it was more simple as global macro backdrop combined with rates selloff combined to produce a decent auction … Take, for example, latest CFO optimism PLUNGING (ok, some hyperbole) driving bids for safe haven
Nah, prolly not. I mean what do big corp CFOs know that small biz (NFIB) don’t? Oh, wait, NOTHING …
But then again, perhaps all the kings horses (BIG BIZ CFOs) and all the kings men (NFIB, small biz) are on to something and media picking up on it — Greg Ip / WSJ
And an excerpt / visual
AND then there’s
As the story concludes, this one is worth thinking about as we round the turn and head into November elections because as we know, elections (as all things in life) have consequences,
… It’s been a long time since rising interest rates forced Congress and the president into painful decisions on which spending to cut or taxes to raise. Thanks to higher inflation, they may face those decisions again.
As always, the WHAT NEXT matters most. Another cost-of-living CRISIS on tap?
… The economy might recover temporarily, but the expansion would be interrupted by another cost-of-living crisis and the Fed would not achieve either of its mandates for employment or inflation.
Lets HOPE not but then, HOPE is not a strategy, right?
Finally from the GOOD NEWS department (and ZH),
WTI Extends Losses After Large Gasoline Build Signals Demand Destruction
Said another way, here’s a version of what my brain did this morning when reading that zinger…
ok, hopefully you get the point … THAT is all for now. Off to the day job…
Curious Steve, why the 26bp premium for 20yr over 30yr? Lack of liquidity in 20yr?