TREASURY WRAP: T-NOTE FUTURES (M5) SETTLE TICKS 2 TICKS HIGHER AT 112-07

Analysis details (20:41)

T-notes steepen as soft US data spreads ahead of IJC, ISM Mfg. PMI and NFP. At settlement, 2s -4.9bps at 3.609%, 3s -4.6bps at 3.602%, 5s -3.3bps at 3.740%, 7s -2.2bps at 3.947%, 10s -0.4bps at 4.170%, 20s +2.6bps at 4.691%, 30s +3.1bps at 4.679%.

INFLATION BREAKEVENS: 5yr BEI +1.1bps at 2.360% 10yr BEI +0.6bps at 2.232% 30yr BEI +1.9bps at 2.195%

THE DAY: T-notes meandered overnight and through European trade with peaks seen in the wake of a dismal ADP report of 112-13, ahead of NFP on Friday. However, the main mover was the GDP report. GDP printed -0.3% in Q1, beneath the 0.2% Bloomberg consensus, while Core PCE rose by 3.5%, above the 3.3% forecast, raising stagflationary fears. This led to selling in bonds, particularly on the long end, while equities were also slammed in response to the hot PCE numbers. However, bond markets started to adjust and focused on the slowing growth angle, with markets now fully pricing in 100bps (four x 25bps) rate cuts, which saw the curve steepen, seeing front-end yields lower and longer-end yields rise. T-notes fell to a low of 111-26+ in the wake of the GDP data but ultimately pared back above 112-00. There was plenty of other data to digest too; Employment Costs rose by 0.9%, in line with the expected and prior, while the Chicago PMI fell beneath analyst expectations. Meanwhile, the March PCE report was mixed vs expectations but saw revisions higher on the priors. It is worth noting that data this week has been soft - falling JOLTS, rising trade deficits, soft consumer confidence, weak ADP, contracting GDP, and soft Chicago PMI. Attention turns to the ISM Manufacturing PMI on Thursday and the NFP report on Friday. Elsewhere, there was little reaction to quarterly refunding (more below). 

QRA: The Quarterly Refunding Announcement was largely as expected, the Treasury left nominal coupon and FRN auction sizes unchanged as expected, and it also maintained its guidance that "Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters." It also continues to believe it would be prudent to continue with incremental increases to TIPS auction sizes in order to maintain a stable share of TIPS as a percentage of total marketable debt outstanding. Therefore, over May-July, it plans to maintain 10yr TIPS reopening auction size at USD 18bln, increase June 5yr TIPS by USD 1bln to USD 23bln, and increase the 10yr TIPS new issue by USD 1bln to USD 21bln. On bills, the Treasury noted until the debt limit is suspended or increased, debt-limit-related constraints will lead to greater-than-normal variability in benchmark bill issuance and significant usage of CMBs. Regarding buybacks, the Treasury is evaluating potential enhancements to its buyback program to better achieve its liquidity support and cash management goals. The Treasury will evaluate a broad range of possible enhancements, such as changes to maximum purchase amounts, buyback operation scheduling and frequency, security eligibility, maturity bucket composition, execution process, and counterparty eligibility. The Treasury anticipates that over the coming quarter, it will purchase up to USD 30bln (prev. 30bln) in off-the-run securities across buckets for liquidity support and up to USD 20bln in the 1-month to 2-year bucket for cash management purposes (prev. USD 59.5bln).

SUPPLY:

• US Treasury sold USD 60bln of 17-wk bills at high rate 4.190%, covered 3.08x


• US Treasury to sell USD 85bln of 4wk bills and USD 75bln of 8wk bills on 1st May; all to settle May 6th


• US Treasury to sell USD 58bln of 3yr notes on May 5th, USD 42bln of 10yr notes on May 6th, USD 25bln of 30yr bonds on May 8th; as expected.

STIRS/OPERATIONS:

• Market Implied Fed Rate Cut Pricing: May 2bps (prev. 3bps), June 17bps (prev. 17bps), July 41bps (prev. 39bps), Dec 102bps (prev. 97bps)


• NY Fed RRP op demand at USD 251bln (prev. 158bln) across 54 counterparties (prev. 37)


• EFFR at 4.33% (prev. 4.33%), volumes at USD 104bln (prev. 105bln).


• SOFR at 4.36% (prev. 4.36%), volumes at USD 2.623tln (prev. 2.567tln).

30 Apr 2025 - 20:41- ForexData- Source: Newsquawk