11:53 am - $29B 7Y Note Auction Preview:
- Previous auction drew 2.235%, 2.48x bid/cover, 48.3% indirect bidders, 10.0% direct bidders
- 12-auction averages: 2.160%, 2.56x bid/cover, 43.6% indirect bidders, 20.0% direct bidders
10:54 am - DXY Slides Back to Test 86: The Dollar Index is sliding lower as it prepares a test of 86.00. The DXY rallied to 86.45 following the latest FOMC statement. The Fed ended its bond buying program, which was widely expected. But the statement proved to be more hawkish then what participants anticipated. This led to buying in the dollar. However, the greenback is giving up some of those gains during U.S. trade. The first look at Q3 GDP came in better than expected (+3.5% vs +3.0% expectations) but the dollar has not reacted much to the news.
- The euro is attempting to stabilize at 1.2600 following post-Fed selling. The single currency was testing key resistance at the 1.2750 level ahead of the Fed, but came under intense selling pressure once the news crossed wires. The euro was able to stabilize at the 1.2550 level and is now back at 1.2615. Inflation data in the region continued to disappoint with Germany and Spain posting lower than expected numbers. But a better than expected German unemployment change and in-line Spanish Q3 GDP helped offset some of the weak inflation numbers.
- The pound tumbled below the key 1.6000 area against the dollar but has been able to regain that level over the past two hours. So far it is holding the level and is stretching out toward session highs of 1.6020.
- The yen fell back to the 109 level in response to the dollar rally. Market focus will turn to Bank of Japan announcement expected overnight. The BoJ will provide its latest economic outlook with most expecting the growth numbers tweaked lower. Expectations of further stimulus actions have diminished over the past couple of months.
08:36 am - Data Reaction:
- Treasuries are seeing little reaction to the strong Q3 GDP-Adv (3.5% actual v. 3.0% expected).
- Maturities across the complex press their best levels of the session.
- Light selling up front has the 2Y +0.4bps @ 0.493%.
- In the belly, the 5Y holds +0.6bps @ 1.603%.
- The 10Y trades -1.1bps @ 2.312%. The benchmark yield has so far been able to hold above the important 2.300% level.
- Outperformance continues at the long end with the 30Y -2bps @ 3.028%. The yield on the long bond is now -10bps off yesterday's high print.
- A flatter curve persists as the 2-10-yr spread trades 182bps.
- Precious metals are under significant pressure with gold -$23 @ $1202 and silver -$0.66 @ $16.60.
07:58 am -
- Yields are mixed across Europe as money moves out of the periphery and into the core.
- German Bunds are bid after preliminary CPI posted a -0.1% MoM reading. A -3.5bp drop has the 10Y down to 0.855%.
- UK Gilts are firm despite the better than anticipated Nationwide Home Price Index (0.5% MoM actual v. 0.4% MoM expected). The 10Y is lower by -5bps @ 2.210%.
- French OATs are bid along with the rest of the core. Today's -4bp decline has the 10Y testing support near 1.250%.
- Italian BTPs are little changed following today's 10Y auction. The auction drew 2.44% (2.45% previous) and a 1.5x bid/cover. A flat session has the 10Y stuck @ 2.525%.
- Spanish Bonos are lower after Flash CPI (-0.1% YoY actual v. 0.0% YoY expected) missed and Flash GDP (0.5% QoQ) was in-line. A +5bp jump has the 10Y up to 2.190%.
- Greek Government Bonds are sharply lower in response to headlines out of the German Ministry suggesting there will be no further support for the troubled country. A +62bp surge has the 10Y back up to 8.20%.
07:08 am -
Euro Slides Below 1.2600:
- The Dollar Index has reclaimed the 86.00 level and is nearing a retest of the October highs near 86.90.
- Early strength ran action above the 86.40 level before pulling back into the 86.20 region.
- EURUSD is -45 pips @ 1.2590 following some mixed data from the region. Spanish Flash CPI (-0.1% YoY actual v. 0.0% YoY expected) missed estimates while Spanish Flash GDP (0.5% QoQ) was in-line and German unemployment change (-22K actual v. 4K expected) posted a beat. The early weakness has dropped the single currency below 1.2600 support, putting the early-October lows near 1.2500 in the crosshairs.
- GBPUSD is -20 pips @ 1.5990 as trade dips to a two-week low despite the Nationwide Home Price Index (0.5% MoM actual v. 0.4% MoM expected) beat. A breakdown of the 1.5900 area drops sterling to levels last seen in September 2013.
- USDCHF is +30 pips @ .9575 as action contends with its best close in more than three weeks. The pair has seen little response to the better than expected KOF Economic Barometer (99.8 actual v. 99.2 expected) as action has been in tight correlation with the euro.
- USDJPY is +15 pips @ 109.00 as trade presses to a three-week high. The recent highs near 110.00 mark the best level in more than six years.
- AUDUSD is -5 pips @ .8785 after the unexpected drop in import prices (-0.8% QoQ actual v. 0.3% QoQ expected). Yesterday's false breakout was a devastating blow to the bulls as trade probed the .8900 area before sliding back into the .8650/.8850 range that has been in place the past month. USDCNY ticked up to 6.1156.
- USDCAD is +10 pips @ 1.1195 amid a mostly uneventful trade. The small bid comes following yesterday's late-day comments by Bank of Canada Governor Stephen Poloz hinting the big drop in oil prices could weigh on growth.
06:41 am -
Treasuries Gain in Overnight Trade:
- Treasuries hold small gains into the cash open.
- Overnight action settled into its usual 3bp range.
- Up front, the 2Y is flat @ 0.489%. Some participants are monitoring the 0.520% area as a push through there puts the recent highs near 0.600% in play.
- In the belly, the 5Y holds -0.6bps @ 1.591%. The 1.650% region will prove difficult to conquer as the 50, 100, and 200 dma lurk in the vicinity.
- The 10Y trades -1.5bps @ 2.308%. Congestion at the 2.300%/2.350% level is a hurdle for the bears.
- Light buying at the long end has the 30Y -0.9bps @ 3.039%. The 3.050% area remains a key battleground.
- Curve flattening continues as the 2-10-yr spread trades 182bps.
- Precious metals are near their lows with gold -$20 @ $1205 and silver -$0.42 @ $16.85.
- Data: Initial and continuing claims and GDP-Adv. (8:30).
- Auction: $29 bln 7Y notes.