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10Y Yields Reject 5% High, Fund Managers Buy Bonds

US TSYS
  • Unwinding weekend short hedges centered on Israel-Hamas and BoJ sources triggered cheapening in Asia hours after 10Y yield climbed above 5% for the first time since Sep'07 earlier to 5.0187% high.
  • Early block buy of +8,237 TYZ3 105-23 (buy through 105-22 post-time offer at 0839:08ET, DV01 $536,000) contributed to the early support followed by the long end after Pershing Square fund manager/CEO Bill Ackman tweeted he had covered shorts in Tsys in light of "too much risk in the world to remain short."
  • Reuters reported asset manager Vanguard is bullish on longer-dated Treasuries after this year's brutal selloff, betting that the Federal Reserve is at the end of its rate hiking cycle and that the economy will slow next year.
  • Short end SOFR futures remained weak (SFRU3-SFRM4 down 0.0025-0.020) despite Bill Gross announced buying of SOFR futures amid "INDICATIONS THAT US ECONOMY IS SLOWING SIGNIFICANTLY" Bbg.
  • As a result, Treasury yield curves rejected mid-2022 highs, finished the session broadly flatter: 3M10Y -5.840 at -61.602 vs. -45.127 high, 2Y10Y -5.282 at -21.655 vs. -11.024 high.
  • Projected rate hikes remained static into early 2024: November holding at 1.6%, w/ implied rate change of +.4bp to 5.333%, December cumulative of 5.7bp at 5.386%, January 2024 cumulative 9.4bp at 5.423%, while March 2024 slips to 5.3bp at 5.381%. Fed terminal at 5.438% in Jan'24. Fed terminal at 5.425% in Feb'24.
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