AUSSIE BONDS: Dec-35 Supply Faces Lower Yield But Steeper Curve

• RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
• RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
• RES 1: 95.685/851 - High Feb 7 / High Dec 11 
• PRICE: 95.590 @ 16:14 GMT Feb 14
• SUP 1: 95.300 - Low Jan 14  
• SUP 2: 95.275 - Low Nov 14  (cont) and a key support
• SUP 3: 94.632 - 1.0% 10-dma envelope

Aussie 10-yr futures have drifted further off the Dec 11 high of 95.851. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point.  

• Tsys futures rallied on Friday, after a large miss in January retail sales (-0.9% M/M vs 0.7% prior, -0.2% consensus) represented the biggest sequential drop in 22 months, with a similarly weak "control group" figure leading to a 0.5pp downgrade to the Atlanta Fed's GDP nowcast (to 2.3% GDP growth in Q1, i.e. no acceleration from Q4). TU closed +03⅛ at 102-24⅜, while TY closed +11 at 109-10.
• The 10yr is now trading 18bps lower than it's peak on Feb 12th at 4.476% after falling 5.3bps on Friday. While JPM has now recommended taking profits on a long 2yr Treasury position initiated earlier last week week. The trade was based on expectations of Fed rate stability following a strong January CPI, but weaker-than-expected PPI and spending data have pushed 2-year yields lower. With yields now aligned with key moving averages and limited near-term data to shift Fed expectations.
• Curves closed mixed on Friday the 3-7yr tenors outperformed, with the 2s10s closing -0.5bps at 21.312, while the 5s10s rose 1bp to 14.7041.
• CFTC data for the week ended Feb. 11 shows asset managers unwinding net-long positions, with significant liquidation in ultra 10-year note futures ($12m/DV01) and reductions in 5-year and 10-year note contracts ($4.1m/DV01 combined). Hedge funds were slightly net bullish, covering $5.2m/DV01 of shorts in ultra 10-year notes and $3.3m/DV01 in SOFR futures, while adding $2.2m/DV01 to net shorts in 10-year note futures.
• The coming week’s data schedule is relatively light, due in part to Today's Presidents Day holiday (SIFMA recommends bond cash close, equities closed), with initial jobless claims, February prelim PMIs, and regional Fed manufacturing surveys among the highlights. Supply includes 20Y Bond and 30Y TIPS auctions.

• RES 3: 97.190 - High May 5 2023
• RES 2: 96.730/932 - High Sep 17 / 76.4% of Mar-Nov ‘23 bear leg 
• RES 1: 96.310/360 High Feb 7 / High Dec 11  
• PRICE: 96.190 @ 16:13 GMT Feb 14
• SUP 1: 95.900 - Low Jan 14  
• SUP 2: 95.760 - Low 14 Nov ‘24
• SUP 3: 95.480 - Low Jan 11 2023 and a major support 

A medium-term bear cycle in Aussie 3-yr futures remains intact, with Wednesday weakness confirming short-term gains as corrective. On the upside, an extension higher would signal scope for 96.360, the Dec 11 high. Clearance of this level would open 96.730, the Sep 17 ‘24 high. On the downside, a reversal lower from current levels would signal a resumption of the downtrend. A deeper sell-off would refocus attention on 95.760, the 14 Nov ‘24 low.