TREASURY WRAP: T-NOTE (H4) FUTURES SETTLE 28 TICKS LOWER AT 110-25

Analysis details (20:41)

Treasury sell-off continues amid a busy supply calendar and a hot ISM Services print. 2s +10.2bps at 4.472%, 3s +11.8bps at 4.268%, 5s +13.1bps at 4.124%, 7s +13.8bps at 4.156%, 10s +13.5bps at 4.166%, 20s +12.3bps at 4.460%, 30s +12.3bps at 4.350%.

INFLATION BREAKEVENS: 5yr BEI +6.4bps at 2.292%, 10yr BEI +5.4bps at 2.265%, 30yr BEI +4.8bps at 2.283%.

THE DAY: Treasuries extended last week's sell-off into the APAC session on Monday with hawkish reaffirmations from Chair Powell on 60 Minutes adding to the expected US supply this week. Selling pressures in APAC were accentuated by an FT article, "BoJ grows more confident about imminent exit from negative rates". Later on, national-level services PMI came in on the hot side in Europe. T-Notes hit support at 111-06+ in the Tokyo morning, then at 111-04 in the London morning. 

The gradual decline extended as US participants returned from the weekend and 111-00+ held as support in the NY morning after a fresh wave of corporate supply weighed on USTs ahead of this week's Treasury auctions. However, the bounce in ISM Services, particularly the Prices Paid component, saw another wave of selling to take T-Notes to session lows of 110-22+, falling through the prior YTD lows of 110-26 in Jan, later in the NY morning. Contracts made a feeble recovery attempt before hovering back down towards the lows ahead of the settlement.

THIS WEEK'S AUCTIONS: US to sell USD 54bln of 3yr notes on Tuesday, USD 42bln of new issue 10yr notes on Wednesday, and USD 25bln of new issue 30yr bonds on Thursday; all to settle on Feb 15th. In Europe, the EU is set to tap 10/26 and 4/44 bonds on Monday, the UK is selling 30yr green bonds on Tuesday and 4yr notes on Wednesday, and Germany is selling 7yr notes on Wednesday. In Japan, a 30yr bond on Wednesday and a 5yr note on Friday.

FED PRICING: The implied probability for a March cut has fallen to 15% from 20% on Friday after the jobs data, and the implied probability for a cut by the May meeting has fallen to 75% now vs 90% on Friday. Meanwhile, the amount of cuts priced across 2024 has been slashed to 115bps from 124bps.

STIRS:

• SR3H4 -3bps at 94.77, M4 -6.5bps at 95.12, U4 -8.5bps at 95.51, Z4 -10.5bps at 95.85, H5 -11.5bps at 96.145, M5 -12.5bps at 96.355, U5 -13bps at 96.48, Z5 -13.5bps at 96.53, H6 -13bps at 96.535, H7 -13.5bps at 96.455, H8 -13bps at 96.355.


• SOFR flat at 5.32% as of Feb 2nd, volumes fall to USD 1.849tln from 1.897tln.


• NY Fed RRP op demand at USD 0.552tln (prev. 0.513tln) across 80 counterparties (prev. 80).


• EFFR flat at 5.33% as of Feb 2nd, volumes rise to USD 91bln from 81bln.


• US sold USD 85bln of 3-month bills at 5.235%, covered 2.91x; sold USD 76bln of 6-month bills at 5.045%, covered 2.91x.

05 Feb 2024 - 20:41- Fixed IncomeData- Source: Newswires