TREASURY WRAP: T-NOTE (H4) FUTURES SETTLE 8+ TICKS LOWER AT 111-23

Analysis details (20:35)

Treasuries closed in a bear-steepener after fading both the post-NFP lows and the post-ISM Services highs. 2s +1.5bps at 4.397%, 3s +3.1bps at 4.180%, 5s +4.4bps at 4.017%, 7s +4.8bps at 4.044%, 10s +6.0bps at 4.051%, 20s +6.8bps at 4.363%, 30s +7.2bps at 4.207%.

INFLATION BREAKEVENS: 5yr BEI +0.4bps at 2.211%, 10yr BEI +0.9bps at 2.230%, 30yr BEI +1.7bps at 2.216%.

THE DAY: Treasuries and other govvies resumed their sell-off on Friday ahead of the US data with the curve entering stateside trade in a mild bear-steepener. There were two block 5yr sellers during APAC trade that were added to with broader momentum during the London morning. Higher oil prices and Red Sea supply chain concerns were top of mind in Europe with EGBs continuing to break through key support levels. Soft German retail sales and the decline in Eurozone core CPI failed to stop the rot. T-Notes themselves found interim lows of 111-18+ at the NY handover.

T-Notes tumbled from 111-22 to session lows of 111-06+ in wake of the above-forecast NFP and above-forecast AHE, but the downward revisions to the priors and concerns over lower trending private sector payrolls saw the move pare fairly swiftly. The miss in the ISM Services survey, but particularly the tumble in the Employment sub-index to 43.3 from 50.7, levels not seen outside of a recession ex-COVID, saw a massive bull-steepening impulse, with T-Notes shooting higher from 111-21 to session highs of 112-10. However, as Europe closed shop, the moves pared across the curve, but the curve kept its steepening bias with eyes to next week's auctions.

FED PRICING: A very choppy day for Fed pricing with 2024 cuts priced falling to near 125bps from 135bps after the NFP data, before spiking to north of 145bps after the ISM Services, only to pare back towards 135bps entering the close, marking no change on the day. 

NEXT WEEK: The highlight next week will be the US CPI report on Thursday, wedged between the 10yr and 30yr auctions, with PPI due on Friday. Other data points of note include the NY Fed's SCE on Monday, with NFIB and international trade due on Tuesday. Fed Speak picks up a bit for the new year with scheduled appearances from Logan (nv) this weekend, Bostic (v) on Monday, Barr (v) on Tuesday, Williams (v) on Wednesday, and Kashkari (nv) on Friday. Bank earnings on Friday kick off the Q4 reports, whilst corporate issuance should recede from this week with many companies entering the earnings issuance blackout. Externally, highlights to watch include Swiss CPI and China trade data on Monday, Chinese inflation on Wednesday, BoJ's branch manager meeting and "Sakura report" on Thursday, and UK GDP on Friday.

NEXT WEEK'S AUCTIONS: US to sell USD 52bln of 3yr notes on Jan 9th, USD 37bln of 10yr notes (reopening) on Jan 10th, and USD 21bln of 30yr bonds (reopening) on Jan 11th; all to settle on Jan 16th.

STIRS:

• SR3H4 +1bps at 94.93, M4 +0.5bps at 95.335, U4 -1.5bps at 95.715, Z4 -2.5bps at 96.055, H5 -3bps at 96.345, M5 -3.5bps at 96.545, U5 -4bps at 96.655, Z5 -4bps at 96.695, H6 -4bps at 96.69, H7 -5bps at 96.625, H8 -6bps at 96.51.


• SOFR falls to 5.32% as of Jan 4th from 5.39%, volumes rise to USD 1.930tln from 1.832tln.


• NY Fed RRP op demand at USD 0.694tln (prev. 0.665tln) across 83 counterparties (prev. 78).


• EFFR flat at 5.33% as of Jan 4th, volumes fall to USD 86bln from 87bln.

05 Jan 2024 - 20:35- Fixed IncomeData- Source: Newsquawk