US TSYS: US Trade Policy Rekindles Risk-Off Sentiment
Feb-26 20:43
- Treasuries bounced off early session lows and look to finish near session highs, curves flatter with bonds outperforming as trade policy concerns rekindled risk-off sentiment prevalent in the first half of the week.
- Risk-off as Pres Trump cabinet meeting marks April 2 when Canada & Mexico "tariffs will go on, not all but a lot of them" , taking a firmer stance on the EU, stating that the decision on tariffs on the EU is 25% and that details will be “coming soon”.
- Tsy Jun'25 10Y futures trade at 110-28 (+10.5) after the bell, piercing resistance at 110-20, the 76.4% retracement of the Dec 3 - Jan 13 bear leg. This broadens the bullish recovery and signals scope for a climb towards the 111-00 handle, ahead of 111-22+, the Dec 3 high and a key resistance.
- New home sales fell much more sharply in January than expected, but this was more than made up for by upward revisions while building permits were revised slightly lower in January’s final reading, to 1,473k - representing a 0.6% decline rather than the initially reported 0.1% rise.
- Canadian dollar and Mexican peso have rallied as a result. USDCAD fell from 1.4360 to 1.4300, while USDMXN fell from 20.47 to 20.29 lows. EU tariff mention saw EURUSD slipping from key resistance around 1.0530 to 1.0485 in short order.
- The upcoming US economic data with the second release for Q4 national accounts on Thursday before the January PCE report on Friday. Real GDP growth is seen confirming what was at the time a softer than expected 2.3% annualized in Q4, whilst there will also be a first estimate for real GDI growth after 2.1% in Q3. However, January’s monthly report (on Friday) is likely to show consumption got off to a much weaker start of 2025.
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US TSYS: China AI Startup DeepSeek Rattles Broader Markets
Jan-27 20:34
- Heavy risk-off moves occurred Monday as Chinese AI startup DeepSeek rattled broader markets: new competition for US AI developers weighed heavily on chip stocks, the tech heavy Nasdaq falling over 3.65% in late trade, spurred heavy outright buying and short covering across the board in Treasuries.
- After the close, the Mar'25 10Y contract trades +22 at 109-05 vs. 109-12 high, just under initial technical resistance at 109-12.5 (50-day EMA), heavy volumes (TYH5 over 2.5M).
- Despite the rally, curves were mixed by the close, 2s10s -2.053 at 32.906, 5s30s +1.680 at 43.432. Nevertheless, projected rate cuts through mid-2025 regain traction vs. late Friday (*) levels as follows: Jan'25 at -0.7bp (-0.1bp), Mar'25 at -8.3bp (-6.9bp), May'25 at -15.9bp (-13.6bp), Jun'25 at -27.9bp (-24.7bp), Jul'25 at -33.7bp (-28.6bp).
- Focus remains on Wednesday's FOMC policy annc, no move expected, as well as a heavy slate of corporate earnings Tuesday: PACCAR, Sysco Corp, Synchrony Financial, Lockheed Martin Corp, Veradigm, Royal Caribbean, Polaris Inc., Boeing, NextEra Energy, JetBlue Airways, General Motors, Kimberly-Clark Corp, Invesco, Starbucks, Qorvo and Stryker Corp.
CANADA: BofA Expect BoC Guidance To Signal Pause Ahead
Jan-27 20:22
- BofA expect the BoC to cut the overnight rate target 25bps to 3.00% although the risk for the meeting is that it keeps rates unchanged.
- “With inflation mostly under control, we believe the BoC will choose to cut the rate to boost the economy and to use the CAD as a shock-absorber in the case tariffs are imposed.”
- “We expect the forward guidance to signal a pause as the BoC waits to see how both domestic activity and US trade policy play out.”
- “With inflation mostly under control and under our expectation that activity will keep improving we see 3.00% as the terminal rate. In addition, our US economists have the US Fed on hold throughout the year.”
- “Our economist's base case is for no tariffs against Canada. However, if tariffs were imposed, the BoC would likely cut rates in response, which risks further widening of the US-CA terminal rate differential.” Specifically, “the BoC may respond by cutting below neutral to use the CAD as a buffer.”
- Rates: “We have revised our CA rate forecast in response to our revised expectations for one more cut in 2025. We now forecast a 10y rate of 3.4%, which is roughly in line with forwards. […] BoC QT is now expected to end in Aug '25 with settlement balances around CAD$50-$70bn.”
- FX: "We see 1.42 as first-order target level for USDCAD. But USDCAD would break the 1.45 resistance level if tariffs are confirmed, reaching 1.50-1.55 if BoC turns dovish.”
US TSYS: Late SOFR/Treasury Option Roundup
Jan-27 20:09
Heavier two-way SOFR & Treasury options traded Monday, large risk Mar'25 10Y reversal taking advantage of the rally in underlying futures to hedge massive 108.5 call position build over the last couple weeks. Rally in underlying futures spurred by sell-off in tech sector on China's DeepSeek AI startup as competitor to various US AIs. The rally saw projected rate cuts through mid-2025 regain traction vs. late Friday (*) levels as follows: Jan'25 at -0.7bp (-0.1bp), Mar'25 at -8.3bp (-6.9bp), May'25 at -15.9bp (-13.6bp), Jun'25 at -27.9bp (-24.7bp), Jul'25 at -33.7bp (-28.6bp).
- SOFR Options:
- +4,000 SFRN5 96.37/96.75 call spds 5.5 ref 96.08
- -10,000 SFRH5 95.87/96.00 call spds 2.25 ref 95.805
- +5,000 SFRM5/SRFU5 95.75/96.00 call spd spds 1 net/Sep over
- +5,000 SFRG5 95.75 puts 1.75 ref 95.80
- -2,500 SFRN5 95.75/96.37 strangle 14.75 ref 96.08
- -2,000 SFRN5 95.62/96.37 strangle 15.0 ref 96.075
- +2,500 SFRK5 95.62/95.75 2x1 put spds 1.0 ref 95.965
- +5,000 SFRM5 95.68/95.81 2x1 put flys, 4.5
- +20,000 SFRJ5 95.75 puts 2.25 ref 95.96
- Block/screen, +30,000 SFRU5 96.37/96.62 call spds 4.5 ref 96.06
- 5,700 SFRG5 95.68/95.75/95.81 put flys ref 95.805
- 13,000 0QH5 95.50 puts ref 96.16
- 2,000 0QH5 96.06/96.18/96.50 broken put flys ref 96.155
- 4,000 SFRH5 95.87/95.93 call spds ref 95.815
- Block/screen 6,000 SFRG5 95.68/95.75/95.81/95.87 put condors, 2.75-3.0
- 3,000 SFRH5 95.68/95.75/95.81 put trees
- +6,250 SFRH5 95.62/95.68/95.75 put flys, 2.25 ref 95.805
- +5,000 SFRU5 96.25/96.62 call spds, 7.5 ref 96.065
- 1,500 SFRZ5 96.00 puts ref 96.115
- 1,500 SFRM5 96.12/96.37/96.68 broken call trees ref 95.955
- Treasury Options:
- +20,000 wk5 TY 107.25 puts, cab-7
- Update, over 49,000 TYH5 107 puts, 8-9 ref 108-31.5 to -30
- Block/screen, +70,000 TYH5 108.5/110.5 put over risk reversals, 17 net vs.109-03/0.60% (+33k at 15/screen) ** reminder - nice hedge for some acct that bought some +75,000 TYH5 108.5 calls Friday at 41 ref 108-14.5, adding to +100k+ from 27-29 on Jan 14, just prior to CPI-tied bounce in underlying).
- 1,500 USH5 107/109/111 put flys ref 114-17
- 4,000 FVJ5 108 calls, 11.5 ref 106-22
- 4,000 FVH5 106.5/107.5 call spds
- 10,000 FVH5 107.5/108.5/109.5 call flys ref 106-17.5
- +17,500 wk5 TY 110 calls, 6-10
- 3,350 wk1 TY 107/107.5 put spds ref 109-03
