ITC Fixed Income Morning Recap:
- USTs in Tokyo/London: early Tokyo trade saw a block of CT10s go through- however, CT10s struggled to trade over 99.15+ (good seller around 14 on screen). Then here in London, there’s been a demand for duration as 2% 10s hold once again. Central Banks were seen buying 5s, Asian RM 7-10s and HF seller of Eurex bonds vs US. Then came x6 block trades of 1,500 in US TBonds and USTs were off to the races. The attempts to cheapen 5s into this afternoon’s supply have failed.
- US 5yr Auction tonight at 16.30GMT/11.30NY: The Treasury is scheduled to auction $35bn in 5s this afternoon. Because of the scheduled release of the January FOMC statement and Chairman Bernanke’s press conference, the auction time has been moved up to 16.30GMT/11:30am from the usual 6pm London/1pm NY. For the 5y tenor, while the b/c ratio declined in December, it did so from high November levels and remained higher than the previous 12m average. At the same time, all auctions since September have priced at yields lower than the WI 1pm levels, with the latest coming through by 0.5bp, highlighting steady demand.
- US Fed Ops: nothing today
- US FOMC: The release of the target federal funds rate path and distribution of timing of the first hike will give insight into the Fed’s “reaction function,” linking its own economic forecasts with its forecast of the target fed funds rate. The Federal Reserve released last week blank templates showing the format of the two charts it will use to report FOMC participants’ projections of the appropriate target federal funds rate. It also released a draft of an explanatory note that will accompany the projections. http://www.federalreserve.gov/newsevents/press/monetary/20120120a.htm .
FOMC Rate decision – 17:30GMT/12.30NY, Summary of Economic Projections – 19:00/14.00NY, Bernanke Press Conference – 19:15/14.15NY
- European Fixed Income: Bunds opened lower on early ‘risk-on’ (reversed now) and talk of a large HF seller of Bunds, Bobls and Schatz vs USTs. Bunds put in the low print at 137.18 before rallying again on a combination of strong Bund 2042 auction (talk one name took large amount (Nordic?)), a reversal in Equities and steepeners out of other core 30yr going into Germany. Prior to the auction, German RM were seen selling Germany 10yr cash- but Bund futures failed to respond as BTPs and PGBs continue to trade poorly this AM. Domestic sellers of 5-10yr BTPs again today. As for flows today- buyers of Bund swap spreads, unwinds of 5s30s and 10s30s swap steepeners and unwinds of 2s5s10s. Bunds continue to bounce off of 2% for now.
- Gilts: prelim GDP estimates for Q4 came slightly below expectations, as output fell by -0.2% q/q, down from +0.6% in the previous quarter- the main surprise came from the fall in construction output. As for BoE minutes, 9-0 as expected. Reaction in the market was minimal.
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