- USTs in Tokyo/London: Tokyo was very quiet- USTs were under pressure on a strong Nikkei rally (on weakening JPY). Early London saw Asian sellers of 7yr and off-the-run 10yr, which pushed us lower. US Fed buy back in 6-8yr today. USTs are closed on Monday, so expect some volatile trading on Tuesday after Monday’ Eurogroup meeting. US 142.08 (-1), TY 130.29+ (-2), FV 123.08+ (-1/2), TU 110.06 3/4 (+1/4), SP 1355.20 +.40, Eur 1.3152 +48
- US Fed Ops: the Fed is scheduled to purchase $4.25-5bn in the 6-8y sector. In previous operations in this sector, it has focused on OTR7y securities. This still looks cheap versus the Treasury spline; old 7y (1.375% Dec18s) and triple old 7y (1.75% Oct18s) also look cheap
- European Fixed Income: Bunds opened lower with USTs. Flows/volumes have been light. One Flattener trade was seen via options- Paper bought the RXH2 140/141 call spreads vs selling OE 125.75/126.25 call spreads. In EGB cash space, France opened up 3-5 tighter across the curve. Dealers saw early Asian CB buyers of 3-4yr Germany and French Treasury desk selling 2yr Germany and France. Front DSL is better bid- no idea if flow driven. Belgium bonds are flying- 8-10bps across the curve with 7-10yr leading. These flows have kept the pressure on bunds this AM. Strong UK retail sales knocked Gilt futures 40 cents, but found support ahead of last Friday’s gap levels at 114.90/65. A lot of focus on the Jan Retail deflator number this morning, which printed 2.2%, lowest since Nov 2009- although the figure is very subject to the VAT effect. Gilt 2062 Linker syndicate next week should keep Gilts pressured. According to Citi WGBI month-end rebalancing- The extension in the index should be muted by the central bank operations and should put steepening pressure on the gilt curves (UK -0.01 years). European Swaps have been muted- better RM and Bank Trsy desk interest to PAY swaps. One deal for today- Eur 1 bn BNP 5yr Senior, MS+150 bps area, BNP sole.