TREASURY WRAP: T-NOTE (M4) FUTURES SETTLE 16+ TICKS LOWER AT 107-14

Analysis details (20:35)

Treasuries bear-flattened after a hot ECI print amps the pressure on the Fed ahead of FOMC and QRA. 2s +6.8bps at 5.041%, 3s +7.2bps at 4.878%, 5s +8.2bps at 4.721%, 7s +8.1bps at 4.710%, 10s +7.4bps at 4.686%, 20s +5.9bps at 4.908%, 30s +5.5bps at 4.792%.

INFLATION BREAKEVENS: 5yr BEI -1.2bps at 2.436%, 10yr BEI -0.5bps at 2.416%, 30yr BEI -1.0bps at 2.378%.

THE DAY: Treasuries extended their Monday bid into the APAC Tuesday session, where T-Notes hit a session peak of 108-00+ in the Tokyo morning. Contracts remained just off highs amid soft Australian retail sales and mixed Chinese PMI data. Better selling kicked in during the European morning, tracking Bunds amid the in-line to slightly firmer European inflation figures. T-Notes hit interim lows of 107-25 at the NY handover, coming on the heels of a fresh WSJ Timiraos article ahead of Wednesday's FOMC titled, "Fed to Signal It Has Stomach to Keep Rates High for Longer". 

T-Notes recovered to 107-30 during the NY morning, with shorts cautious ahead of month-end, before tumbling to 107-16 after the hot Q1 Employment Cost Index raised the prospects of further core inflation pressures. Contracts managed to recover to 107-22+ after the poor Chicago PMI and dip in Consumer Confidence. However, contracts failed to close the gap any further from their pre-ECI levels, and contracts settled at lows. There was particular pressure in EGBs in late trade with Eurex closed for holiday on Wednesday. The Treasury curve has closed out the session in a bear-flattener in the run up to Powell, with Fed pricing now reduced to 30bps of implied cuts this year vs 35bps before the data.

Looking ahead, attention is on Wednesday's Quarterly Refunding Announcement (no changes in coupons expected) and the FOMC with Powell expected to tow a more hawkish line given the data, followed by NFP on Friday. We also get JOLTS, ADP, and ISM mfg. on Wednesday, and ISM Services on Friday.

QRA PRIMER: The Treasury is expected to announce at 13:30BST/08:30EDT on Wednesday its nominal coupon auction sizes will remain unchanged for the quarter ahead, with USD 54bln of 3yr notes to be sold on May 7th, USD 42bln of 10yr notes on May 8th, and USD 25bln of 30yr bonds on May 9th. Last quarter's announcement said, "Based on current projected borrowing needs, Treasury does not anticipate needing to make any further increases in nominal coupon or FRN auction sizes, beyond those being announced today, for at least the next several quarters." Any funding shortfalls in the near term are expected to be met with ramped bill issuance. The market may be sensitive to any commentary within the releases about the potential for coupon auction size increases later this year, as the Q1 meeting minutes hinted towards, "[Treasury] may consider recommending additional increases to coupon auction sizes over time based on changes in borrowing needs". 

STIRS: 

• SR3M4 -2bps at 94.685, M5 -10bps at 95.28, M6 -9.5bps at 95.725, M7 -8.5bps at 95.87.


• SOFR at 5.32% (prev. 5.32%), volumes at USD 1.781tln (prev. 1.795tln).


• NY Fed RRP op demand at USD 0.534tln (prev. 0.506tln) across 76 counterparties (prev. 75).


• EFFR at 5.33% (prev. 5.33%), volumes at USD 78bln (prev. 94bln).


• Treasury leaves 4-, 8-, and 17-week bill auction sizes unchanged at USD 70bln, 75bln, and 60bln, respectively; 4- and 8-week to be sold on May 2nd and 17-week bills on May 1st; all to settle on May 7th.


• US sold USD 65bln 42-day CMBs at 5.285%, covered 3.06x.

30 Apr 2024 - 20:35- Fixed IncomeData- Source: Newsquawk