Morgan Stanley Fixed-Global Macro Commentary April 29-107905349

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Global Macro Commentary | Global

April 29



Martin W Tobias, CFA



  !"#"#$%"&%'$%

()*+!

Dominic J Krummenacher



, -. /  !00#'$0#1&2$3"



Eli P Carter



4  !"#"#$%"&0$'5

Lenoy Dujon

6784 

,.9  !"#"#$%"&#$$2

()*+!

Lorenzo Testa



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;<))=)>!

Gek Teng Khoo



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Acute JPY strength prompts MoF intervention talk; Tsys bull-

flatten through borrowing estimates; OATs and BTPs

outperform, Bonos lag; SEK lags on growth contraction; ECB's

Wunsch cautions on cut signals; CNH gains with local equities;

DXY at 105.64 (-0.3%); US 10y at 4.614% (-4.9bp).

• Acute  strength prompts discussion on intervention by the

; media reports later suggest

intervention occurred;  (-1.3%) retreats from session highs

near 160.

• bull-flatten as a rally prevails through larger privately-

held net marketable borrowing estimates, with focus on unchanged

coupons at  and downside risks from a QT taper.

• ! outperform Bonos against Bunds, with "

underperformance likely a result of political uncertainty; #$%

tighten 2.4bp against 10y Bunds.

•&' lags despite the resilient risk backdrop as (" in the ("

) contracts by 0.3% m/m in both March and February, after a

0.4ppt downward revision.

•&*%+,*-)./" expresses caution about

sending a signal to market participants for a second consecutive rate

cut in July.

•*01 (+0.3%) gains against the US dollar alongside a rally in local

equities (*23$$: +1.11%) with support from large northbound

inflows (RMB13.6bn).

Please refer to our latest Foundation (How Mexico's Elections Matter), Global Macro

Strategist (Fed in Focus), and Global EM Strategist (IMF Takeaways) as well as our

recent publications and collaborations (US Rates Strategy: The Problem with

Steepeners; LatAm Macro Strategy: This MXN Sell-Off Is Different; EM Strategy:

What Do Your Peers Think about Asia/China?; EM Fixed Income Flows Update: Where

Supply Meets Demand; Podcast: The Global Macro Guide | Ep. 71).

,-4

United States:

Ahead of a catalyst-filled week, the Monday session did not disappoint.

A delayed open for Treasuries, in the London morning with Japan out in observance

Morgan Stanley does and seeks to do business with

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investors should be aware that the firm may have a conflict of

interest that could affect the objectivity of Morgan Stanley

Research. Investors should consider Morgan Stanley

Research as only a single factor in making their investment

decision.

For analyst certification and other important disclosures,

refer to the Disclosure Section, located at the end of this

report.

+= Analysts employed by non-U.S. affiliates are not registered

with FINRA, may not be associated persons of the member

and may not be subject to FINRA restrictions on

communications with a subject company, public appearances

and trading securities held by a research analyst account.

April 29, 2024 11:48 PM GMT



of a local holiday, meant currency markets were in the spotlight. At 1:00pm JST, a

precipitous drop in USD/JPY and broader JPY strength invoked discussion of long-

awaited FX intervention by the Japanese Ministry of Finance. MoF officials wouldn't

confirm whether actual yen-buying intervention occurred but media reports later

suggested intervention had occurred. Official disclosure from the MoF will only

come at the end of May.

Macro markets had a lengthy wait until Treasury’s 3:00pm ET quarterly financing

estimates for the next risk event. 1Q24 privately-held net marketable borrowing

needs realized at $748bn, below the estimate of $760bn made in January. This was

driven by higher cash receipts and lower outlays, despite a $25bn higher ending TGA

cash balance.

2Q24 privately-held net marketable borrowing estimates were revised up to $243bn

(P: $202bn), given projections of lower cash receipts as the financing need increased

by $66bn. The TGA target for end-June was maintained at $750bn and there was no

assumption for a reduction in the pace of SOMA redemptions (Fed QT).

The larger financing need could have been to account for a presumed start of

Treasury buybacks in the May quarter, which will be a maximum of $60bn across

Liquidity Support and Cash Management buybacks. The term “lower cash receipts”

heavily depends on the perspective upon which the cash receipts projection was

made. Cash receipts may not have been as high as projected relative to April 2022,

or they may not have been as high as projected to also account for the additional

cash outlays to fund Treasury buybacks.

The 3Q24 privately-held net marketable borrowing estimate was $847bn. Treasury

also did not assume a reduction in the pace of SOMA redemptions (Fed QT).

Treasury also set an end-September target for the TGA at $850bn (end-June:

$750bn).

At the May refunding announcement, at 8:30am ET on Wednesday, we still expect

no change in Treasury coupon sizes given guidance from February that nominal

coupons and FRNs would be unchanged “for at least the next several quarters.” We

believe unexpected variations in borrowing needs will be addressed through

changes to bill supply.

That includes less bill supply from lower borrowing needs should the Fed announce

the decision to lower the monthly run-off cap on Treasury securities to $30bn from

$60bn at the May FOMC meeting, as in our base case (for more, read here).

Treasuries ultimately bull-flattened as a rally prevailed through larger privately-held

net marketable borrowing estimates and focused turned to May refunding, as well

as an improving fiscal picture. The trailing 12m projected financing needs through

September 2024 are $1.367tn, this is 21% below the trailing 12m financing needs in

the period ended September 2023. The July-September 2024 financing need of

$486bn is 7% below the prior-year period.

An initial drop in the S&P (+0.32%) on the higher-than-expected borrowing

estimates was quickly reversed as the index closed the session above its 3:00pm ET

level. JPY maintained its broad strength and was the clear outperformer in the G10,

with USD/JPY (-1.3%) sharply lower.



Morgan Stanley Research 3

Japan:

Despite no official confirmation from the Japanese Ministry of Finance, price action

in CCY/JPY pairs suggests it may have intervened in FX markets to strengthen JPY on

the basis that recent FX moves have been more excessive than fundamentals. USD/

JPY sold off aggressively three times during London hours, with each sell-off slightly

smaller than the last, and each time with a small reversal as some participants

attempted to buy the dip. Ultimately,  closed the London session near the

155.85 level, down 1.6%.

Europe:

+%(+0.6%) strengthened, although there was significant divergence in the

Scandinavian currencies; 0 ' was (+0.5%) and &' (-0.1%) after weak Swedish GDP

data, which indicated a potential fourth consecutive quarter of GDP contraction.

&5 (+0.3%) gained despite soft nationwide CPI data. *1 (+0.5%) gained amid US

dollar weakness, with the DXY USD Index down 0.4%.

& traded relatively strong on Monday as regional inflation was

softer. #$% rallied ~4.3bp and closed at 2.53% as the curve bull-flattened,

while the front-end remained anchored. Total pricing of cuts to December 2024

returned to -72bp (Friday: -67bp). During the rally, the reds pack in Euribors

experienced some relief and outperformed on the strip.  outperformed

against both Germany and Spain, helped by the unchanged rating from both

Moody’s and Fitch on Friday, while  was likely weighed down by the uncertain

political developments, which led to relative underperformance against peers.

Tighter semi-core spreads helped performance of other country spreads against

core; #$% tightened by 2.44bp against 10y Bunds to 132bp. In ASW, cash

underperformed slightly against swaps as the German complex tightened in short

and intermediate maturities.

Dollar Bloc:

The US dollar was broadly weaker, driven by lower US yields. The Antipodean

currencies fared particularly well – 06 (+0.7%) and ! (+0.6%) – while *!

(+0.2%) lagged its risk-sensitive peers.

&)4

Asia:

AxJ currencies exhibited mixed moves amid the JPY rebound and broad gains in

regional equities. CNH outperformed peers and more than reversed losses from

Friday. *01 weakened ~0.3%, back to the 7.25 handle as local equities (CSI

300: +1.1%) advanced alongside large northbound inflows (RMB13.6bn). *0

remained steady. SGD also outperformed; + fell 0.2% to 1.36 following

weakness in USD/JPY and USD/CNH. '5/ did not benefit from its usual

correlation with USD/JPY or equity inflows and finished the AxJ session 0.2% higher

at ~1,378. High yielders underperformed; 25 retraced all its gains from last week,

0.3% weaker to 16,255, and INR was 0.2% weaker to 20583.48.

AxJ rates were mixed. *" was the key underperformer in the region, as 5y NDIRS

yields spiked higher by 7bp, the most since July 2023, to 2.18%, the highest level

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MGlobalMacroCommentary|GlobalApril29MartinWTobias,CFA!"#"#$%"&%'$%()*+!DominicJKrummenacher...

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