TREASURY WRAP: T-NOTE FUTURES (H5) SETTLE 16 TICKS LOWER AT 108-15

Analysis details (20:15)

T-Notes bear steepen in holiday conditions with focus this week on supply. At settlement, 2s +3.5bps at 4.347%, 3s +4.8bps at 4.365%, 5s +6.2bps at 4.441%, 7s +7.3bps at 4.525%, 10s +6.9bps at 4.593%, 20s +6.0bps at 4.863%, 30s +6.2bps at 4.778%.

INFLATION BREAKEVENS: 5yr BEI +3.6bps at 2.384%, 10yr BEI +3.2bps at 2.331%, 30yr BEI +3.0bps at 2.323%.

THE DAY: T-Notes were sold across the curve in a steeper fashion in thin conditions ahead of the Christmas holidays despite front-end supply. US data was brought forward today to see Durable Goods miss on the headline but primarily due to soft aircraft orders while New Home Sales were in line with expectations with upward revisions. Consumer Confidence missed analyst expectations in December and Chicago Fed National Activity index rose to -0.12 from -0.50. There was little action in response to the data with attention turning to supply this week, although volatility is to be expected in thin trading conditions around the Christmas period. T-Notes had been moving lower ahead of the 2yr auction which ultimately was mixed (more below). T-note futures hit a low of 108-15 vs the overnight highs of 109-00+, settling around lows.

2YR: The 2yr auction was mixed heading into Christmas with thin liquidity. The US Treasury sold USD 69bln of 2yr notes at a high yield of 4.335%, stopping through the when issued by 0.1bps. The stop through was smaller than the prior 1.8bps stop through, and smaller than recent averages of 0.6bps. The Bid-to-Cover of 2.73x was beneath the prior 2.77x but above the 2.68x six auction average. Meanwhile, the breakdown saw very strong indirect demand. Indirect bidders took 82.1% of the auction, well above the prior 71.6% and 68.1% average. Meanwhile, Direct demand slumped to just 6.7% from 19.2%, beneath the 19.5% average. This left Dealers taking home 11.3% of the auction, above the prior 9.2% but shy of the 12.3% six auction average.

THIS WEEK SUPPLY: US Treasury to sell USD 70bln 5yr notes on December 24th and USD 44bln in 7yr notes on December 26th; all to settle December 31st. To sell USD 28bln in 2yr FRN on December 24th, to settle December 27th. 

STIRS/OPERATIONS:

• Market Implied Fed Rate Cut Pricing: January 2bps (prev. 3bps), March 12bps (prev. 15bps), May 16bps (prev. 19bps), December 2025 35bps (prev. 39bps).


• US sold USD 81bln of 13-wk bills at a high rate of 4.24%, B/C 2.86x; sold USD 73bln of 26-week bills at high rate 4.17%, B/C 2.87x


• US sold USD 65bln 42-day CMBs at high rate of 4.280%, B/C 2.68x; Sold USD 49bln 1yr bills at high rate of 4.07%, B/C 3.37x.


• NY Fed RRP op demand at USD 98bln (prev. 112bln) across 39 counterparties (prev. 39).


• SOFR at 4.30% (prev. 4.30%), volumes at USD 2.390tln (prev. 2.330tln).


• EFFR at 4.33% (prev. 4.33%), volumes at USD 113bln (prev. 104bln).

23 Dec 2024 - 20:15- Fixed IncomeResearch Sheet- Source: Newsquawk