GILT AUCTION PREVIEW: On offer next week

• -5,000 TYH5 109-14.5, sell through 109-15 post time high at 1020:49ET, DV01 $321,000. The 10Y contract has since receded to 109-03.5 following headlines of Mexican tariff pause for a month.

Mexican President Sheinbaum says tariffs are paused for a month from now, having said Mexico had a "good" call with Trump, which led to some "accords". The supposed accords include the deployment of 10,000 national guard immediately to the border to stem drug trafficking. 

MXN rallies hard, alongside CAD on that headline - a delay of one month for the installation of tariffs which were set to kick in at 0001ET on Tuesday.

• USD/MXN falling hard and the pair has now more than closed the opening gap with the Friday close.
• Equity futures rallying in sympathy.

• The ISM manufacturing index was stronger than expected in January at 50.9 (cons 49.9) after a slightly downward revised 49.2 (initial 49.3) as the manufacturing sector continues a strong recovery seen off October lows of 46.9.
• It follows the particularly strong recovery in the regional Fed surveys that we have been flagging (see most recently here), although those gains have admittedly been particularly concentrated in the Philly survey.
• New orders led the increase on the month, increasing to 55.1 from a downward revised 52.1 (initially 52.5) for a fresh high since May 2022.
• Business export orders are lower at 52.4 but show a similar relative trajectory, rising from 50.0 for also their highest since May 2022.
• The press release on new orders: “Of the six largest manufacturing sectors, four (Petroleum & Coal Products; Machinery; Chemical Products; and Transportation Equipment) reported increased new orders. Panelists noted an improved level of demand performance, with a 2-to-1 ratio of positive comments versus those expressing concern about near-term demand, an improvement compared to December. Capital and export orders were significant contributors.”
• Imports “Imports expanded this month after contracting for seven months in a row, preceded by five consecutive months of expansion and 14 consecutive months of contraction prior to that. Imports re-entered growth as inventory constraints weaken, tariff countermeasures are put in place, a ports strike was avoided and the deliveries from the Lunar New Year season arrive at U.S. ports".
• Prices paid meanwhile were close to expectations as they increased to 54.9 (cons 54.8 with a typically small survey of just 5 responses) after an unrevised 52.5. It pokes above the 54.8 in October for the highest since May.