TREASURY WRAP: T-NOTE (M4) FUTURES SETTLE 25+ TICKS LOWER AT 107-28+

Analysis details (20:48)

Treasuries sold off hard Monday as geopolitical risk hedges unwound and hot US retail sales put the focus back on the resilient US growth outlook. 2s +4.9bps at 4.931%, 3s +7.1bps at 4.783%, 5s +10.7bps at 4.642%, 7s +11.8bps at 4.642%, 10s +12.5bps at 4.624%, 20s +12.7bps at 4.853%, 30s +13.0bps at 4.733%

INFLATION BREAKEVENS: 5yr BEI +3.7bps at 2.494%, 10yr BEI +3.4bps at 2.440%, 30yr BEI +3.0bps at 2.368%.

THE DAY: Treasuries had been gradually tracking lower through the Monday APAC session and European morning with the unwind of geopolitical risk and return of focus to hot US economic conditions and shifting Fed calculus. While Iran has stated that it believes the matter has been resolved following its drone attacks over the weekend, the risk is now that Israel retaliates. Ahead of the US retail sales figures, price action in USTs had been very gradual rather than spikey, with little other market-moving catalysts. 

T-Notes were at interim lows of 108-01+ before the above-forecast retail sales figures saw kneejerk selling, breaching through the last Thursday/YTD low of 107-27+; the smaller rise than expected in Empire mfg. survey was overlooked. Fed's Williams had also been speaking (again) on Bloomberg right after the data, saying he doesn't see the recent inflation data as a turning point, whilst saying monetary policy is in a good place, saying his own view is rate cuts will likely start this year. The downside in T-Notes extended to see session lows printed at 107-18+ before a ramp-up of reporting around an Israeli response saw contracts recover somewhat into the afternoon, although T-Notes struggled to hold above 108-00.

Looking ahead, Fed's Daly is speaking after hours. Although appearances from Fed Chair Powell and Vice Chair Jefferson both on Tuesday have the potential to mark a more formal shift in Fed comms to the recent inflation data if they so wish, although markets have already knocked off a lot of rate cut pricing this summer. Aside from those two, the week is laden with appearances from other Fed officials. Meanwhile, we get a slew of economic data that includes housing starts and IP on Tuesday, Beige Book on Wednesday, Philly Fed, IJC, and existing home sales on Thursday, with a quiet Friday to give set up for next week's 2s, 5s, and 7s auctions. But before then, Wednesday's 20yr bond auction will serve as a litmus test for dip buying after recent fixed income weakness, followed by the 5yr TIPS auction on Thursday. 

THIS WEEK'S AUCTIONS: US to sell USD 13bln of 20yr bonds (reopening) on April 17th and USD 23bln of 5yr TIPS new issue on April 18th; all to settle on April 30th.

STIRS: 

• SR3M4 -2bps at 94.75, U4 -3bps at 94.91, Z4 -5bps at 95.09, H5 -6bps at 95.285, M5 -6.5bps at 95.465, U5 -7bps at 95.625, Z5 -8bps at 95.735, H6 -9.5bps at 95.80, M6 -10.5bps at 95.85, M7 -13.5bps at 95.96.


• SOFR flat at 5.31%, volumes fall to USD 1.805tln from 1.857tln.


• NY Fed RRP op demand at USD 0.327tln (prev. 0.407tln) across 62 counterparties (prev. 65).


• EFFR flat at 5.33%, volumes fall to USD 88bln from 92bln.


• US sold USD 75bln of 3-month bills at 5.250%, covered 2.95x; sold USD 75bln of 6-month bills at 5.155%, covered 2.79x.

15 Apr 2024 - 20:48- Fixed IncomeData- Source: Newsquawk