Bond Market AM Update: Bunds lead Treasuries down, long-end leads way lower

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TUESDAY, Jan 10, 2012

OVERNIGHT TREASURIES

* Bunds lead Treasuries down, long-end leads way lower
* 113k 10-year futures trade by 06:49 EST
* Mixed flows overall; Japanese accounts sell mortgages, provide mixed business in belly,
Asian accounts on both sides of mkt in front-end
* USTs outperforming EGBs by 1.1bp in the 10yr maturity compared to the previous London
close.
* 10s trade in a range of 1.963% and 1.982% overnight.

MARKET BIAS

* The tactical bias is that of a neutral/defensive range trader favoring the selling of strength
into the auctions to then cover in.
* Look for a 2.04% to 1.95% range in 10s.
* The strategic bias is short a 50% position in 7s at 1.42%, and another 50% position at
1.39% into the 10-year auction. A 50% long was taken in the bond at 2.99% as a partial
hedge.
* The curve bias is in a 5s/10s flattener at 110.4 bps

TECHNICAL OVERVIEW

Bond Market Technicals

DATA

* 07:30 NFIB Small Business Optimism Index (Dec) (prev 92.0)
* 07:45 ICSC/GS Chain Store Sales Index (wk Jan 7) (prev +5.3% y/y)
* 08:55 Redbook Same Store Sales Index (wk Jan 7) (prev +4.9% y/y)
* 10:00 IBD/TIPP Economic Optimism Index (Jan) (prev 42.8)
* 10:00 Job Openings and Labor Turnover Survey (Nov) (prev 2.4% job openings rate)
* 10:00 Wholesale Inventories (Nov) (mkt +0.4% m/m, prev +1.6% m/m)
* 10:00 Wholesale Sales (Nov) (prev +0.9% m/m)

EVENTS

* 10:15 Fed outright TIPS purchase (01/15/2018 – 02/15/2041) (e: $1.00-1.50 bln)
* 10:30 FRB San Francisco’s Williams (voter, dove) to speak; Vancouver, WA
* 11:10 FRB Cleveland’s Pianalto (voter, moderate) on “Labor Markets”; Wooster, OH
* 13:00 FRB Kansas City’s George (non-voter) on the economic outlook

ISSUANCE

* 11:30 Treasury auctions $30 bln 4-week and $25 bln 52-week bills
* 13:00 Treasury auctions $32 bln 3-year notes
* ADB, Bmk Global 5-year; GS/JPM/MS/RBC; m/s -8bp, UST +low 30bp area
* Hutchinson Whampoa Int; 500m 5-yr, Bmk 10-yr; GS/HSBC/JPM

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