MACROCOSM: Brexit, BoE, Supply and the Curve - Quick Rundown
Gilts are opening weaker, the curve's a bit steeper and cable's about unched.
> UK Retail Sales came in a touch firmer than estimates at +4.3% YOY (ex auto fuel).
> EC President von der Leyen is 'convinced' a deal is possible.
https://blinks.bloomberg.com/news/stories/QGU34HT0AFB6
> London Covid-19 Cases Rise to Be Confirmed Today, Standard Says
https://blinks.bloomberg.com/news/stories/QGUE17T0G1KX
Raising fears of another lockdown in London.
> Market's still digesting the impact of the MPC minutes' mention of their negative rates implementation investigation. 1y1y Sonia remains near the rates lows at -16.7bps. No explicit mention of QE has some GEMMs (like Citi) putting on tactical 10-30s Z-sprd steepeners into next week's 0H61s tap.
> Another 3-7yr APF on Monday, the 0H61s syndicated tap on Tuesday. (more below)
> Combine firm-ish data, positive comments on Brexit, neg rates chatter and next week's supply and we've got a recipe for a steeper curve. We haven't broken any new ground (our 1H26-1Q27 sprd is still just 8.1bps mid and 1H26-0R30-4H34 is ~1.2bp cheaper) but the tactical flattening we were looking for into yesterday's MPC didn't happen.
> RBC is on board with our 1H26-1Q27s flattener idea, advocating it in their AM Rundown today.
> The syndicated UKT 0.5% 10/61 tap is widely expected to happen next Tuesday with size estimates from £5-7bn. We can see from the charts below that the 0H61s have been trading well lately. They're .9bps rich to the 460s (they came at even yield back on May 19th) and the UKT 1T57-0H61-3H68 fly we recommended last Friday at -1.6bps is now -2.15bps, slowly grinding richer in line with the rally in 20y20y SONIA. As with all these deals, there's a danger the market gets a bit too amped-up and richens the issue too much into the deal, however, given the lack of ultras supply and the house-cleaning we've seen in the long-end APFs lately, we expect real money investors will still need to buy them. As we've also mentioned, other issues in the sector that have lagged this move (like the 57s) should also see some demand, especially if the 61s over shoot the runway.
UKT 57-61-68 fly vs 20y20y SONIA
UKT 54-57-60 fly remains cheap given the rally in SONIA. We can see from the chart below that previous cheapening moves corrected, usually within a week. We like buying the belly here.
More to come…
Mark
Mark Funsch
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US BREAKEVENS AND USGGT : BREAKEVENS NOW HAVE A DEFINED TOP WITH THE DAILY’S POISED TO BREACH THEIR DAILY 50 DAY MOVING AVERAGES. IT COULD GET MESSY.
US BREAKEVENS AND USGGT : BREAKEVENS NOW HAVE A DEFINED TOP WITH THE DAILY’S POISED TO BREACH THEIR DAILY 50 DAY MOVING AVERAGES. IT COULD GET MESSY.
USGGT ALL DURATIONS ARE AT HISTORICAL MONTHLY RSI LOWS, ONE OF 2008 PROPORTIONS. POST YESTERDAYS PRICE ACTION WE ARE ABOUT TO EMBARK ON A MAJOR REVERSAL.
**** A ONCE IN A LIFETIME SITUATION REGARDING USGGT10Y!****
BREAKEVENS ARE NOW STALLING IF WE CLOSE AT CURRENT LEVELS, UP TO NEXT WEEK TO CONFIRM THAT TOP. USGGBE10Y COULD BE THE ONE TO WATCH GIVEN WE FAILED
THE 76.4% RET 1.7982.
ADDITIONAL CHARTS ARE GOLD AND THE EURO BOTH OF WHICH ARE POISED FOR A MAJOR CORRECTION LOWER.
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US-BREAKEVENS-AND-USGGT-...-BREAKEVENS-NOW-HAVE-A-DEFINED-TOP-WITH-THE-DAILY’S-POISED-TO-BREACH-THEIR-DAILY-50-DAY-MOVING-AVERAGES..pdfMICROCOSM: BoE MPC Meeting Today > Quick RV Rundown
UK - MPC Meeting Today
- Powell and Co told us yesterday it'll take an economic miracle to get the FED to raise rates before 2023 and the ECB continues to bang the 'all the support the economy needs' drum, about as dovish as central bankers get.
- So, it stands to reason that the MPC's tone will also lean dovish, particularly with Brexit and furlough worries keeping economists up at night.
- The £2 Trln question is how much more will the rates/FX markets price in relative to current levels?
We've got 1y1y Sonia at -11bps (just off the -14bps lows), UKT 4T30s (G Z0) back to just 21bps and GBP is still sub 1.30 at 1.295 this am.
- Given the MPC has yet to formally confirm that QE is on the table - the final driver of a flatter curve - we're thinking momentum will stall unless they lean that way. The consensus is if the MPC does announce further QE, they will wait until the Nov MPC meeting as they should know by then where Sunak stands on the furlough scheme and any other 'creative support' the government can come up with. The Nov meeting has become a bit less significant in recent days as Sunak is likely to delay the Autumn Budget due to his requests for more economic data, however, either way, the MPC seems to think time is on their side.
- As noted on Monday, momentum richer in the US-UK-DBR blend was running out of steam, also reflected in a bottoming out of Cable. The 6bps cheapening of the blend (chart below) could easily be taken back but with the FED's uber-dovish bias, it's not quite as compelling a trade here.
- On the gilts curve, the 4H34s-1T37s sector have performed well this week, especially the 4H34s which have richened on the Z-sprd fly vs 0R30s and 1Q41s to a level that has held since May. This puts the 4H34s at a cross roads in our view. More flattening SHOULD mean 34s-41s flattens to bring the spread more in line with the move in 30-34s and a bearish steepening bias brings in sellers of 34s vs 30s. By the way – anyone notice the 0F35s? They've run out of gas and are now +12.2bps vs 34s, .7bp cheaper than their post deal tightening and 34-35-36s is now +16.3bps, suggesting profit taking is emerging. Doesn't bode well for the sector…
More to come!
Mark
Mark Funsch
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This research was prepared by Mark Funsch. He is a consultant with Astor Ridge. A history of his marketing commentaries can be provided upon request in compliance with the European Commission's Market Abuse Regulation. Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail. The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains recommendations, those recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results.
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FX UPDATE : THE USD WEAKNESS IS BACK ON TRACK AND POISED TO PICK UP THE PACE. THIS ALSO TIES IN WELL WITH THE HIGHER BOND YIELD PREDICTION PREVIOUSLY.
FX UPDATE : THE USD WEAKNESS IS BACK ON TRACK AND POISED TO PICK UP THE PACE. THIS ALSO TIES IN WELL WITH THE HIGHER BOND YIELD PREDICTION PREVIOUSLY.
THE AUD IS THE MAIN CROSS TO WATCH GIVEN IT HAS HELD ITS MULTI YEAR MOVING AVERAGE 0.7274.
USD CAD IS TESTING ITS MAJOR 50 PERIOD MOVING AVERAGE 1.3171!
HERE ARE A SELECTION OF USD CROSSES THAT MUST SURELY SEE THE USD FADE OVER TIME. SIMILAR TO THE BOND MARKET REJECTION OF ITS MARCH EXTREMES!
I HAVE USED NON-CORE CROSSES AS THEY ACHIEVED SOME MAJOR DISLOCATIONS IN MARCH SIMILAR TO US BONDS. I HAVE MARRIED THE USD WITH BRL,MXN,RUB AND CLP. THEY HIGHLIGHT BOTH USD AND US BONDS ARE HEADING LOWER FOR SOME TIME.
SOME CROSSES ARE AT MULTI YEAR EXTREMES AND REPRESENT A SIZEABLE LONGTERM TRADE OPPORTUNITY.
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BONDS YIELDS : CHART WISE QUIETLY CONFIDENT WE ONLY SEE BOND YIELDS HEAD HIGHER FOR THE REMAINDER OF THE MONTH.
BONDS YIELDS : CHART WISE QUIETLY CONFIDENT WE ONLY SEE BOND YIELDS HEAD HIGHER FOR THE REMAINDER OF THE MONTH.
US 30YR YIELDS HELD THEIR 1.3829 BOLLINGER AVERAGE, THUS COULD BE A VERY KEY HOLD.
**I HAVE LEFT OUT THE VOLUME AND OPEN INTEREST CHARTS GIVEN THE ROLL PERIOD, THUS LESS CHARTS. **
DO TAKE A LOOK AT ALL MONTHLY CHARTS ENCLOSED TO UNDERSTAND THE YIELD LOWS ARE IN AND HOW MUCH HIGHER THEY COULD GO!
DBR 46 IS HOPEFULLY GOING TO BREACH THE MARCH TREND LINE 167.682, THIS WIL BE A MAJOR STEP FORWARD.
** STILL CONFIDENT WE HAVE SEEN THE LOWS IN LONGEND YIELDS!**
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BONDS YIELDS : YIELDS HAVE MOVED BACK IN TO NEUTRAL-LOW VOLUME TERRITORY BUT THE LONG-TERM CHARTS STILL CALLING FOR HIGHER YIELDS!
BONDS YIELDS : YIELDS HAVE MOVED BACK IN TO NEUTRAL-LOW VOLUME TERRITORY BUT THE LONG-TERM CHARTS STILL CALLING FOR HIGHER YIELDS!
US 30YR YIELDS HELD THEIR 1.3781 BOLLINGER AVERAGE, THUS COULD BE A VERY KEY HOLD.
**I HAVE LEFT OUT THE VOLUME AND OPEN INTEREST CHARTS GIVEN THE ROLL PERIOD, THUS LESS CHARTS. **
DO TAKE A LOOK AT ALL MONTHLY CHARTS ENCLOSED TO UNDERSTAND THE YIELD LOWS ARE IN AND HOW MUCH HIGHER THEY COULD GO!
DBR 46 CONTINUES TO TEASE THE MARCH TREND LINE 167.846.
** STILL CONFIDENT WE HAVE SEEN THE LOWS IN LONGEND YIELDS!**
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US BREAKEVENS AND USGGT : BREAKEVENS HAVE LEFT A “TOP ETCHED IN STONE” GIVEN LAST WEEKS HIGH REMAINS IN PLACE. WE SHOULD HEAD A LOT LOWER NEXT WEEK.
US BREAKEVENS AND USGGT : BREAKEVENS HAVE LEFT A “TOP ETCHED IN STONE” GIVEN LAST WEEKS HIGH REMAINS IN PLACE. WE SHOULD HEAD A LOT LOWER NEXT WEEK.
USGGT ALL DURATIONS ARE AT HISTORICAL MONTHLY RSI LOWS, ONE OF 2008 PROPORTIONS. POST THE WEEKS PRICE ACTION WE ARE ABOUT TO EMBARK ON A MAJOR REVERSAL.
**** A ONCE IN A LIFETIME SITUATION REGARDING USGGT10Y!****
BREAKEVENS ARE STALLING ALONG WITH THE RUSSELL, BOTH CORRELATE WELL.
THE RUSSELL HAS SPENT THE MAJORITY OF ITS WEEK SUB AN ALL IMPORTANT 50 DAY MOVING AVERAGE 1513.052.
USGGBE10Y COULD BE THE ONE TO WATCH GIVEN WE FAILED THE 76.4% RET 1.7982.
USGGBE5YR HAS LEFT A NASTY WEEKLY “DOUBLE TOP”.
ADDITIONAL CHARTS ARE GOLD AND THE EURO BOTH OF WHICH ARE POISED FOR A MAJOR CORRECTION LOWER.
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BONDS YIELDS : THE YIELD RALLY COULD SOON PICK UP PACE!
BONDS YIELDS : THE YIELD RALLY COULD SOON PICK UP PACE! ALTHOUGH EARLY IN THE MONTH IT SHOULD NOW BE ONE WAY TRAFFIC, HIGHER YIELDS!
US 30YR YIELDS HELD THEIR 1.3924 BOLLINGER AVERAGE, THUS COULD BE A VERY KEY HOLD.
**I HAVE LEFT OUT THE VOLUME AND OPEN INTEREST CHARTS GIVEN THE SEPTEMEBER CONTRACTS REMAIN LIVE IN THE USA. **
DO TAKE A LOOK AT ALL MONTHLY CHARTS ENCLOSED TO UNDERSTAND THE YIELD LOWS ARE IN AND HOW MUCH HIGHER THEY COULD GO!
DBR 46 IS THE ONE TO WATCH HAVING FAILED PERFECTLY AT THE LONGTERM TRENDLINE 168.173 AND ITS 200 DAY MOVING AVERAGE 166.653.
** EVEN MORE CONFIDENT WE HAVE SEEN THE LOWS IN LONGEND YIELDS!**
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BONDS YIELDS : YIELDS IN EUROPE HAVE BACKED OFF BUT ONLY TO SOLID SUPPORT, LONG-TERM CHARTS STILL CALLING FOR HIGHER YIELDS!
BONDS YIELDS : YIELDS IN EUROPE HAVE BACKED OFF BUT ONLY TO SOLID SUPPORT, LONG-TERM CHARTS STILL CALLING FOR HIGHER YIELDS!
US 30YR YIELDS HELD THEIR 1.3783 BOLLINGER AVERAGE, THUS COULD BE A VERY KEY HOLD.
**I HAVE LEFT OUT THE VOLUME AND OPEN INTEREST CHARTS GIVEN THE ROLL PERIOD, THUS LESS CHARTS. **
DO TAKE A LOOK AT ALL MONTHLY CHARTS ENCLOSED TO UNDERSTAND THE YIELD LOWS ARE IN AND HOW MUCH HIGHER THEY COULD GO!
DBR 46 IS TEASING THE LONGTERM TRENDLINE 168.337 HOPEFULLY WE HEAD LOWER FOR THE REMAINDER OF THE WEEK.
** STILL CONFIDENT WE HAVE SEEN THE LOWS IN LONGEND YIELDS!**
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MICROCOSM: UK - SONIA 1y1y, Gilts Curve and Macro Picture - Quick Rundown
GILTS/GBP... 1Y1Y SONIA
- While the gilts mkt has been focusing on the 15yr syndication and Monday's index extension, there's been a storm brewing in the front-end of the curve.
- 1y1y SONIA - a nice barometer of sentiment - has richened back to close at new record low rates yesterday. This has prompted the mkt to price in another 10bps MPC rate cut sooner than it was last week, now possibly as soon as June 2021.
- The combination of this richening along, Monday's index extension AND a bit of a relief trade post 15yr syndication helped explain the market's decision to make the BoE pay up at yesterday's 20Y+ APF operation with some eye-popping premiums.
- With the govt limiting gatherings to a max of 6 (as of Monday) to curb the spread of C-19, it's logical to assume risk assets will remain on alert. It also suggests to us that gilts supply concerns will take a back seat to the macro outlook - implying a bull flattening bias will persist s/term.
- We have a TAP of the 0F50s tomorrow, followed by 1T37s next Tues. We STILL like the 1T37s here and think they're the cheapest issue (along with the new 0F35s) on the whole curve, especially with their under-performance vs 34s and 36s yesterday.
> UKT 34-37s yield sprd remains at its steepest this am - we like the flattener.
- Yesterday's REACH by the BoE must have gotten the ultras shorts a tad antsy to say the least. GEMMs who didn't want to buy 1T57s from us earlier in the day were scrambling into the close to cover. While there's plenty of time between now and the Sep 22 syndicated tap of the 0H61s, it seems prudent to us to look at leaning long the sector in various guises.
More on this shortly.
Mark
Mark Funsch
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This research was prepared by Mark Funsch. He is a consultant with Astor Ridge. A history of his marketing commentaries can be provided upon request in compliance with the European Commission's Market Abuse Regulation. Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail. The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains recommendations, those recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results.
You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP.
Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287
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Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796