Treasuries Eke Out Gains
- Treasuries eked out small gains amid a quiet trade.
- The complex saw some volatility in the overnight session and rallied to its best levels of the day as stocks opened under pressure, but gave up most of those gains as stocks recovered from the weak open.
- Yields were limited to a 3bp range in U.S. trade as tradable data and news were absent.
- Up front, the 2Y fell -3.4bps to 0.346%. Support in the 0.300% area will be watched closely in the days ahead.
- In the belly, the 5Y fell -2.5bps to 1.395%. Resistance in the 1.450%/1.500% area was tested in overnight action, but was able to hold.
- The 10Y eased -1.8bps to 2.181%. The benchmark yield probed the 2.200% mark, but sellers were unable to get the yield back above the level that bond guru Jeff Gundlach suggested would be the low water mark for the move.
- At the long end, the 30Y slipped -0.9bps to 2.959%. The psychologically important 3.000% mark was threatened, but held.
- A slightly steeper curve developed with the 2-10-yr spread widening to 183.5bps.
- Precious metals gained with gold +$7 @ $1246 and silver +$0.05 @ $17.38.
- Data: Existing home sales (10).
Dollar Tests 85.00:
- The Dollar Index presses session lows as trade probes the 85.00 level.
- The greenback saw a modest overnight bid, but has come under steady selling throughout U.S. trade.
- EURUSD is +35 pips @ 1.2795 as a modest bid develops following two days of losses. The single currency has been found a bid following word the European Central Bank has begun buying French and Spanish covered bonds to kick off its ABS purchase program. A run through 1.2800 puts 1.2900 resistance in play.
- GBPUSD is +75 pips @ 1.6165 as buyers remain in control for a fourth session. A quiet day for news and data out of the UK has left trade correlated to risk. Britain's public sector net borrowing will cross the wires tomorrow.
- USDCHF is -20 pips @ .9430 with action pressing session lows. Support in the .9400 area is being watched closely, but its ability to hold is likely dependent on action in the euro. Swiss data set for tomorrow is limited to the trade balance.
- USDJPY is flat @ 106.90 after surrendering all of its early gains. The pair climbed to nearly 107.50 following overnight reports Japan's largest pension fund, GPIF, is boosting its equity allocation to 25% (currently 12%).
- AUDUSD is +45 pips @ .8790 as trade continues to test the lowest levels of 2014. The latest Reserve Bank of Australia minutes will be released tonight, and have the ability to break the pair out of the .8650/.8850 range that has been in place for the past month. Chinese data is heavy this evening as GDP, industrial production, and fixed asset investment are all scheduled for release.
- USDCAD is +10 pips @ 1.1285 as trade contends with its best close since July 2009. The pair held small losses early on in the U.S. session, but recovered the lost ground following the in-line wholesale sales data.
Afternoon Update: 2Y +01/32 @ 100 09/32...3Y +03/32 @ 100 10/32...5Y +03/32 @ 101 21/32...7Y +02/32 @ 101 25/32...10Y +04/32 @ 101 21/32...30Y +06/32 @ 103 06/32...EURUSD +35 pips @ 1.2795...GBPUSD +55 pips @ 1.6145...USDJPY -5 pips @ 106.80...USDCHF -25 pips @ .9425...AUUDSD +45 pips @ .8790...USDCAD unch @ 1.1275
Treasuries Trade Mixed
- Treasuries have surrendered the majority of their early gains and now trade mixed.
- Early strength continues to keep yields in the belly pinned. A -1.7bp drop has the 5Y -1.7bps @ 1.403%.
- The 10Y is off -0.7bps @ 2.192% as action probes the 2.200% level, which bond guru Jeff Gundlach suggested was 'the bottom.'
- Light selling at the long end has the 30Y +0.4bps @ 2.972%. The psychologically important 3.000% level remains in focus.
- A steeper curve persists as the 2-10-yr spread trades 186bps.
- Precious metals are firm with gold +$6 @ $1245 and silver +$0.05 @ $17.38.
Currencies Quiet Ahead of China Data, Preliminary PMIs:
The Dollar Index
is attempting to hold the 85.00 level as we kick off another week of trade. It has been a quiet start to the week with no notable economic data. However, market participants will be awaiting China economic data overnight that promises to garner plenty of attention. In addition, preliminary PMI data from major economies will be released Wednesday night and Thursday morning. It is overall a quiet macro calendar in the U.S. with the most notable reports being existing home sales (Tue), CPI (Wed), and leading indicators (Thu).
- The euro was under early selling pressure but it continues to show signs of being able to hold the 1.2750 level. There is plenty of concern around the upcoming French and Italian budgets, but stories out over the weekend suggest France was in talks with Germany behind the scenes to smooth out differences. Market focus in the region will be on upcoming 'stress test,' results which are expected to be released Sunday, October 26.
- The pound is extending on recent gains as it climbs into the 1.6150 area. Better than expected housing prices has helped cable push to its best level in a week. Sterling has been putting together a nice upward trend since dipping to 1.58 early last week.
- The Japanese yen saw some weakness as a report over the weekend stated that sources were saying the country's Government Pension Investment Fund will raise its holdings in foreign bonds and lower its stake in JGBs. There has been no confirmation of this and there are some questioning the legitimacy of the rumor. Regardless, it did lead to some profit taking in the yen the briefly pushed it to 107.40 before it stabilized.
Treasuries Trim Gains
- Treasuries have slipped off their best levels of the day as stocks found buyers after their initial drop.
- Early strength has Treasury yields lower by as much as -2.5bps in the belly.
- The 10Y continues to flirt with the 2.200% level, but has not yet been able to reclaim the mark. Currently, the benchmark yield holds -2.3bps @ 2.176%.
- A slightly steeper curve persists as the 2-10-yr spread trades 183bps.
- Precious metals are near their best levels of the session with gold +$7 @ $1246 and silver +$0.17 @ $17.50.
- European yields are mixed after the European Central Bank announced it has begun its ABS purchase program by buying French covered bonds.
- German Bunds are bid as the ECB purchases begin. Also impacting trade is the cooler than expected PPI (0.0% MoM actual v. 0.1% MoM expected) reading, which fuels worries a deflationary spell has crippled the region's economies. A -3bp drop has the 10Y up to 0.825%.
- UK Gilts hold modest gains. A -4bp drop has the 10Y down to 2.155% as action pulls back from resistance.
- French OATs drift little changed after the reported ECB purchases of covered bonds. A -1bp decline has the 10Y @ 1.295%.
- Peripheral yields are on the rise with Italy's 10Y +2bps @ 2.525% and Spain's 10Y +3bps @ 2.195%.
Euro Firms in Early Trade:
- The Dollar Index holds steady near 85.15.
- Overnight, the Index probed the 85.35 level but has spent early morning trade surrendering those gains.
- EURUSD is +15 pips @ 1.2775 amid a mostly uneventful trade. Early action has been limited to a 45 pip range as trade digested the German Bundesbank's latest monthly report suggesting while the economy is slowing it is unlikely to slide into a recession. Also impacting trade were reports the European Central bank has begun its asset purchase program, first buying French covered bonds. The 1.2800 level has been tested over the past few sessions, but has so far been able to hold.
- GBPUSD is +35 pips @ 1.6125 as buyers take control for a fourth day. A lack of news and data out of the UK has left action at the mercy of the risk trade.
- USDCHF is -5 pips @ .9445 as trade hovers little changed. The absence of any catalyst has kept the pair tightly correlated to the euro.
- USDJPY is +15 pips @ 107.00 as trade ticks higher for a third session. The current rally has the pair testing what was previously support in the 107.00 area.
- AUDUSD is +20 pips @ .8765. The hard currency continues to press the 2014 lows as it has for much of the past month. USDCNY was flat @ 6.1235.
- USDCAD is -15 pips @ 1.1260. Action has been limited to a 40 pip range with wholesale sales set for release later this morning.
Treasuries Trade Flat:
- Treasuries drift little changed ahead of the cash open.
- Volatility remains greater than usual with overnight action expanding to a range of 6bps.
- Up front, the 2Y holds -1.6bps @ 0.363%. The 0.300%/0.400% area will be monitored in the days ahead as trade chops around between the support and resistance levels.
- In the belly, the 5Y is +0.5bps @ 1.425%. Resistance in the 1.4500%/1.500% region will surely be tested over the coming days.
- The 10Y trades little changed near 2.200%. The benchmark yield has round tripped from last Wednesday's move and is now fighting to take resistance at the 2.300%2.350% level.
- At the long end, the 30Y is +0.2bps @ 2.970%. The psychologically important 3.000% mark has seen a couple tests, but so far has managed to hold.
- A steeper curve is in the works with the 2-10-yr spread wider @ 183.5bps.
- Precious metals are firm with gold +$3 @ $1242 and silver +$0.05 @ $17.38.
- Data: None.
The Week in Review
The Week Ahead
- Treasuries booked gains amid an historic week.
- On Wednesday, the complex saw its equivalent of a 100-year flood as a 10 sigma move pushed long dated yields lower by as much as -34bps.
- A comparable move would be an ~14% swing in the S&P 500.
- The plunge in yields made for the biggest one-day range for yields since the Fed announced its $1 trln asset purchase program on March 18, 2009.
- Yields spent the rest of the week repairing the damage with both the 10Y and 30Y recouping all of their losses and then some.
- Contributing to the selling were Ebola fears, continued weakness in the German economy, and a jump in peripheral yields that was brought on by reports the Greek government is considering an early exit from its IMF rescue.
- Economic data was mixed. Retail sales (-0.3% actual v. -0.2% expected), PPI (-0.1% actual v. 0.1% expected), Empire Manufacturing (6.2 actual v. 20.4 expected), and building permits fell short of expectations while industrial production (1.0% actual v. 0.4% expected), capacity utilization (79.3% actual v. 79.0% expected), Philly Fed (20.7 actual v. 19.8 expected), housing starts (1017K actual v. 1013K expected), and Michigan Sentiment (86.4 actual v. 84.0 expected) beat.
- Up front, the 2Y fell -5bps to 0.379%. The yield pressed below support in the 0.400% and 0.300% areas before bottoming at May 2013 levels near 0.200%.
- In the belly, the 5Y tumbled -11bps to 1.420%. Action tested the 1.100% level before rallying over the second half of the week. The 1.450%/1.550% area will be key in the days ahead.
- The 10Y fell -9bps to 2.199%. Early in the week bond guru Jeff Gundlach suggested the benchmark yield would bottom in the 2.200% area. However, that prediction would be proven wrong rather quickly as Wednesday's rush to safety dropped the benchmark yield to a low of 1.868%. The yield hit levels last seen in May 2013 before rallying sharply.
- At the long end, the 30Y lost -6bps to 2.968%. Wednesday's panic flushed the yield to a more than two-year low of 2.677%. Sharp selling over the remainder of the week produce some prints above the 3.000% level before slipping a bit into the weekend.
- The yield curve saw a mixed week as the 2-10-yr spread tightened to 182bps and the 5-30-yr spread widened to 155bps.
- There is no data on Monday.
- Tuesday's data is limited to existing home sales (10).
- Wednesday will see the weekly MBA Mortgage Index (7) and CPI (8:30).
- Thursday's data includes initial and continuing claims (8:30), FHFA Housing Price Index (9), and leading indicators (10).
- Data concludes for the week on Friday with new home sales (10).
Dollar Retakes 85.00:
- The Dollar Index clings to small gains near 85.10.
- Overnight selling pushed action as low as 84.80, but trade has managed to reclaim the 85.00 support level.
- EURUSD is -25 pips @ 1.2780 as light selling takes hold for a second day. The single currency tested 1.2850/1.2900 for a third straight session as peripheral yields eased; however, resistance at the level once again proved too strong. The German Bundesbank's monthly report will be released Monday morning.
- GBPUSD is +30 pips @ 1.6105 as buyers remain in control for a third day. The win streak has run sterling testing the resistance level despite many forecasters pushing back their estimates for a Bank of England rate hike.
- USDCHF is +20 pips @ .9450 after early selling was unable to break .9400 support. That area has been in question over the past several days, but the bulls have been able to hold. Today's action has been tightly correlated with the euro.
- USDJPY is +35 pips @ 106.65 as buyers take control for a second day amid the return to risk. The pair has probed the 50 dma in each of the past couple of sessions, but has not closed below the mark in three months. A run through 107.00 puts 108.50 in play.
- AUDUSD is +10 pips @ .8760 after giving up most of its early gains. Support in the .8650/.8700 area is all that stands in the way of a breakdown of the 2014 lows.
- USDCAD is +10 pips @ 1.1275 as action presses session highs. Today's bid follows the slightly hotter than anticipated Candian CPI (0.1% MoM actual v. 0.0% MoM expected). Canadian data scheduled for Monday is limited to wholesale sales.