TREASURY WRAP: T-NOTE (H4) FUTURES SETTLE 4 TICKS LOWER AT 109-16

Analysis details (20:02)

Treasuries saw pronounced flattening on Thursday amid a fall in jobless claims and mixed PMI data ahead of the front-loaded auctions next week. 2s +5.9bps at 4.712%, 3s +5.1bps at 4.484%, 5s +3.1bps at 4.330%, 7s +1.6bps at 4.347%, 10s +0.2bps at 4.325%, 20s -2.2bps at 4.578%, 30s -3.2bps at 4.460%.

INFLATION BREAKEVENS: 5yr BEI -1.5bps at 2.339%, 10yr BEI -2.2bps at 2.332%, 30yr BEI -2.4bps at 2.307%.

THE DAY: T-Notes recovered to session peaks of 109-24 in the APAC Thursday session with Japan selling some 10yr, 20yr and 30yr JGBs in a liquidity tap saw some support from JGBs at the time. Bear-flattening kicked in after the mixed European PMIs (recovery in services but manufacturing still suppressed), but crucially, included no relent on the price pressure gauges; there was also some post-FOMC minutes focus on what was not said that was considered hawkish on the margin. T-Notes found support at 109-18+ which held until the NY morning. 

The NY arrival saw a continuation of the bear-flattening, taking T-Notes to new session lows. The announcement of AbbVie's seven-part debt deal weighed further, which was ultimately upsized to USD 15bln from USD 13bln, coming ahead of the USD 9bln 30yr TIPS auction, not to mention next week's ramped size 2yr, 5yr, and 7yr auctions. Contracts hit their troughs of the session at 109-10 on the heels of the fall in initial jobless claims, although contracts swiftly pared the data move, with the long end leading a bounce off the lows, accentuating the curve's flattening. Not long after, the mixed Flash PMIs with the promising inflation commentary saw T-Notes extend higher to match their APAC peaks of 109-24. However, contracts trundled back lower within ranges through the rest of the session, with the hot existing home sales figures, Fed's Jefferson (who like his colleagues, called for caution on cutting too soon), and poor TIPS auction weighing. Friday has no notable scheduled events in the US, but we do get German Q4 GDP, Ifo survey and UK CBI trends. Japan is on holiday.

30YR TIPS AUCTION: Treasury sold USD 9bln of new issue 30yr TIPS in what was a poor demand reception. The 2.200% high yield, which despite being at multi-month highs, marked a tail of 2.5bps, worse than last August's 2bp tail, and adds to the poor 20yr auction on Wednesday. The bid/cover ratio of 2.43x was above the prior 2.42x and six-auction average (which goes back to February 2021) of 2.39x. Dealers were left with 9% (prev. 4.3%; avg. 12.6%), with declines vs August in both Directs and Indirects.

NEXT WEEK'S AUCTIONS: US to sell its ramped size, new issue USD 63bln of 2yr notes and USD 64bln of 5yr notes both on Monday and USD 42bln of 7yr notes on Tuesday; all to settle on Thursday (in time for month end). Japan is to sell a 5yr transition note on Tuesday and a 2yr note on Thursday. UK is to sell a 15yr inflation linker on Tuesday and a 7yr note on Wednesday. Germany is to sell a 26yr green bond on Tuesday, followed by 15yr bonds on Wednesday. 

STIRS:

• SR3H4 -0.5bps at 94.698, M4 -3.5bps at 94.905, U4 -6bps at 95.19, Z4 -7.5bps at 95.495, H5 -8bps at 95.765, M5 -8bps at 95.98, U5 -6.5bps at 96.145, Z5 -5bps at 96.245, H6 -3.5bps at 96.28, H7 -1bps at 96.265, H8 +1bps at 96.22.


• SOFR flat at 5.30% as of Feb 21st, volumes fall to USD 1.607tln from 1.610tln.


• NY Fed RRP op demand at USD 0.553tln (prev. 0.575tln) across 86 counterparties (prev. 96).


• EFFR flat at 5.33% as of Feb 21st, volumes fall to USD 101bln from 104bln.


• US sold USD 95bln of 1-month bills at 5.285%, covered 2.90x; sold USD 90bln of 2-month bills at 5.275%, covered 2.78x.


• Treasury leaves 6-, 13-, and 26-week bill auction sizes unchanged at USD 80bln, 79bln, and 70bln, respectively; 13- and 26-week bills to be sold on Feb 26th and 6-week on Feb 27th; all to settle on Feb 29th.

22 Feb 2024 - 20:02- Fixed IncomeData- Source: Newsquawk