There was not much to note in the overnight session, where aside from artificial market-boosting developments out of China (noted here) which have carried over into a risk-on mood for the US market, however briefly, Europe has been virtually unchanged following two quiet auctions by Austria and the Netherlands. Austria sold a total of €660m of 4% 2016 bonds, and €600m of 3.65% 2022 bond. Avg. yield 2016 bond 2.213% vs 1.96% in the previous auction, in other words the shorter borrowing costs roses, and the longer ones fell. Holland sold a total of €3.105b of 0.75% 2015 bonds; the target was up to €3.5b. with an average yield 0.853%. End result EURUSD is virtually unchanged for the day at 1.2770 as of this writing despite some serious short covering earlier (as expected [16]), while the Italian BTPs remain unch at 7.15%. What is probably more disturbing and is to be expected, is that now virtually all the free cash from the December 21 LTRO (all €210 billion of it) and then some has been allocated to the ECB, where the Deposit Facility usage rose by nearly €20 billion overnight to a new record of €482 billion, €217 billion more than the December 21 notional. The question that should be asked is just what do banks know that lemming long-only investors don't. Hint - ask UniCredit.
And a recap summary courtesy of Bloomberg's Daybook by James Halloway:
- Treasuries lower within last week’s 1.87%-2.04% range, before $66b in note and bond auctions begin with $32b 3-yrs.
- WI 3-yr yields 0.39%; notes sold last month drew 0.352%, second-lowest on record, and record-high 3.62 bid/cover
- German two-year note yields matched a record low amid speculation a meeting of Merkel and IMF chief Lagarde will fail to stem the region’s debt crisis; AAA-rated Norway’s 10-yr note yield fell to the lowest since at least 1992
Fitch’s head of sovereign-debt ratings sees a “significant chance” of an Italy rating downgrade, says IMF’s Greece program doesn’t seem to be working; unlikely to downgrade France this year
- Stocks rallied, commodities gained after a report overnight showing China’s import growth fell to a two-year low in Dec., spurring speculation the nation may act to spur growth
WHAT TO WATCH
- The departure of White House Chief of Staff William Daley reflects Obama’s choice to abandon a strategy of seeking accommodation with congressional Republicans and his critics in corporate America
- Wall Street’s biggest firms, facing a slump in investment banking revenue, are considering freezing compensation levels for some junior bankers, according to people familiar with the deliberations
- 7:30am, NFIB Small Business Optimism, Dec.
- 10:00am, IBD/TIPP Economic Optimism, Jan.
- 10:00am, JOLTs Job Openings, Nov.
- 10:00am, Wholesale Inventories, Nov., est. 0.5% from 1.6%
- 10:30am, Fed’s Williams to speak on economy in Vancouver, Washington
- 11:00am, Fed to purchase $1b-$1.15b TIPS in 1/15/2018 to 2/15/2041 range
- 11:10am, Fed’s Pianalto speaks on labor markets in Ohio
- 11:30am, U.S. to sell 4-week bills, $25b 52-week bills
- 1:00pm, U.S. to sell $32b 3-yr notes
- 1:00pm, Fed’s George speaks on economic outlook in Kansas City
TREASURY YIELD OUTLOOK
- Overnight, yields rose modestly, led by 7-yr +1.4bps; majority of rise came in Asian trading, where sentiment was boosted on perception U.S. growth is strengthening and that slowing Chinese trade would lead to policy easing, according to Bloomberg analyst TJ Marta
- Little scheduled risk; Treasury $32b, 3-yr note auction might provide some volatility
- 2-yr yield slipping from Friday high, consolidating between 50-DMA 0.2486%, 100-DMA 0.2396%, support Dec. low 0.2141%, Nov. low 0.2067%, Sept. record low 0.1431%; resistance Jan. high 0.2798%, Dec. high 0.2943%, Nov. 2010 low 0.3118%, Oct. high 0.3167%, June low 0.3208%
- 5-yr yield consolidating near lows for year; support Dec. 19 low 0.7943, Sept. record low 0.7605%; resistance 50-DMA 0.8909%; 100-DMA 0.9282%, psychological 1.00%, Oct. high 1.22%
- 10-yr yield still consolidating just below 2.00%; support Dec. 19 low 1.80%, Oct. 4 low 1.72%, Sept. record low 1.67%; resistance 50-DMA 1.98%, 100-DMA 2.02%, Dec. high 2.16%, Oct. high 2.42%
- 30-yr yield consolidating just above 3.00%, 50-DMA 3.00%; support Dec. 19 low 2.78%, Oct. low 2.69%; resistance 100-DMA 3.11%, Dec. high 3.15%, Nov. high 3.19%, Oct. 28 high 3.48%; *2/10 curve consolidating in 170s around 50-DMA 173bps; support Dec. 19 low 156bps, Oct. low 147bps; resistance 100-DMA 178bps, Dec. high 189bps, Nov. high 190bps, Oct. high 211bps
CURRENCY MARKETS
- Euro and sterling gain vs. dollar as risk sentiment improves after Fitch says euro area breakup is not base case scenario and it’s not expecting French downgrade this year
- Focus on unfolding developments on Greek PSI and meeting between German Chancellor Merkel and IMF Chief Lagarde in Berlin
- EUR/USD +0.2% to $1.2796
- Dollar Index -0.2% to 80.83
- Dollar liquidity tensions continue to ease and investors are turning complacent on outlook for global growth: BOTM
- Encouraging to hear Merkel and Sarkozy’s new push to revive economic growth and jobs in euro zone; euro attempting relief rally on improved risk sentiment, extreme short speculative positions: BOTM
- Risk sentiment also boosted by prospects of more monetary easing in China: BOTM

