TREASURY WRAP: T-NOTE FUTURES (M5) SETTLE HALF A TICK HIGHER AT 110-26

Analysis details (20:30)

T-Notes end the day unchanged as attention turns towards US-China trade talks over the weekend. At settlement, 2s -1.0bps at 3.885%, 3s -0.7bps at 3.867%, 5s -0.6bps at 3.988%, 7s -0.2bps at 4.175%, 10s +0.1bps at 4.375%, 20s +0.2bps at 4.860%, 30s +0.4bps at 4.835%.

INFLATION BREAKEVENS: 5yr BEI -0.1bps at 2.448%, 10yr BEI +0.1bps at 2.306%, 30yr BEI +0.1bps at 2.247%.

THE DAY: T-Notes meandered throughout APAC and European trade in a very narrow range, finding lows of 111-23+ before breaking out higher in the US morning. On trade, US President Trump floated the idea of a reduction of China tariffs and even posted to Truth about an 80% figure, but said it's up to Treasury Secretary Bessent, who is set to lead negotiations with China in Switzerland over the weekend on trade. T-Notes and equities chopped to the news, ultimately, little bothered, while NY Post reported on Thursday that the US weighs a plan to slash China tariffs to as low as 50% from 145% as soon as next week. As US players arrived, Treasuries flipped green, with the space finding relief, particularly on short-dated Treasuries following the selling on Thursday as markets readjusted to a more hawkish Fed Chair Powell. Gains extended on the risk-off equity trade, shortly after the US cash open, resulting in 111-03 highs. Thereafter, equity trade was choppy, trading little changed at Treasury settlement, at which point T-Notes ended the day where they began amid a flattening curve. From the PBoC, the Q1 Monetary Policy Implementation Report unveiled that the Central Bank will suspend Treasury bond buying and selling in phases; will resume buying and selling depending on market supply and demand situations. The day saw a ton of Fed speak, whereby members kept to Chair Powell's script on Wednesday of a strong/resilient economy, a moderately restrictive policy, and a wait-and-see approach for a change in the policy rate. Come Monday, the main conversation will concern the developments over the weekend in Switzerland between US officials and Chinese officials over trade, where perhaps the outcome will dictate Bessent's recommendation to Trump on his proposed China tariff reduction to 80%.

STIRS/OPERATIONS

• Market Implied Fed Rate Cut Pricing: June 4bps (prev. 4bps), July 17bps (prev. 18bps), September 35bps (prev. 35bps), Dec 67bps (prev. 67bps).


• NY Fed RRP op demand at USD 140bln (prev. 155bln) across counterparties 32 (prev. 46)


• EFFR at 4.33% (prev. 4.33%), volumes at USD 113bln (prev. 111bln).


• SOFR at 4.29% (prev. 4.30%), volumes at USD 2.545tln (prev. 2.535tln).

09 May 2025 - 20:30- ForexGeopolitical- Source: Newsquawk