TREASURY WRAP: T-NOTE FUTURES (M5) SETTLE 11+ TICKS LOWER AT 110-26

Analysis details (20:10)

Treasury curve steepens as Trump pushes Powell to lower rates and calls for his termination. At settlement, 2s -4.6bps at 3.750%, 3s -2.3bps at 3.772%, 5s +2.4bps at 3.959%, 7s +5.9bps at 4.177%, 10s +7.8bps at 4.405%, 20s +10.9bps at 4.945%, 30s +10.0bps at 4.909%.

INFLATION BREAKEVENS: 5yr BEI -3.2bps at 2.290%, 10yr BEI -1.4bps at 2.220%, 30yr BEI +2.2bps at 2.226% 

THE DAY: T-Notes were choppy on Monday with UK and Europe away for Easter Monday. The curve saw notable steepening with 2yr yields falling, but long end yields rose, seeing the 2s10s spread rise back above 60bps. The driver of the price action in the Treasury curve was primarily further threats from US President Trump to fire Fed Chair Powell. The President continues to call for the termination of the Fed Chair, and calls on Powell to lower interest rates, meanwhile, NEC Director Hassett said that Trump is studying ways to remove Powell. This saw front-end yields fall on the apparent risk of Trump firing Powell, and putting in a new Fed Chair who will look to lower rates. However, the longer end of the curve saw yields rise with fears that low interest rate policies will only boost inflation further, with short-term inflation expectations already high, interest rate cuts would only boost these expectations. However, it is worth noting that longer-term inflation expectations (which the Fed watches closely) remain anchored with 10yr breakeven inflation at 2.23%, while the 5-year 5-year forward measure is at 2.17%. There was a chunky 20k 2yr Treasury block trade which helped extend the buying in the front-end, with 2yr yields ultimately hitting a low of 3.72%, the lowest yield since April 9th - when Trump announced he was easing reciprocal tariffs. Elsewhere, attention turns to 2-, 5-, and 7-year supply this week, alongside the flash S&P Global PMIs.

SUPPLY:

• US sold USD 71bln of 6-mth bills at 4.050%, covered 2.93x; sold USD 79bln of 3-mth bills at 4.225%, covered 3.01x

US Treasury to sell:

• USD 69bln of 2-year notes on April 22nd, USD 70bln of 5-year notes on April 23rd and USD 44bln of 7-year notes on April 24th; all to settle April 30th


• USD 30bln 2-year floating rate notes on April 23, to settle on April 30.


• USD 70bln of 6-week bills on April 22nd.

STIRS/OPERATIONS:

• Market Implied Fed Rate Cut Pricing: May 4bps (prev. 3bps), June 20bps (prev. 18bps), July 44bps (prev. 38bps), Dec 97bps (prev. 87bps).


• NY Fed RRP op demand at USD 114bln (prev. 59bln on Thursday) across 38 counterparties (prev. 22).


• EFFR at 4.33% (prev. 4.33%), volumes at USD 94bln (prev. 99bln).

21 Apr 2025 - 20:10- ForexData- Source: Newsquawk