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2s10s Steepening Extends As Front End Rallies On Bullard, Long End Weighed By EU Supply

US TSYS
  • 2Y Tsys have seen a decent rally over the past hour, seemingly following former St Louis Fed’s Bullard seeing prospects for the Fed cutting in 1H24 before inflation returns to the 2% target, in absence of clearer drivers.
  • The WSJ article was published at 1345ET but it took another 15mins for any reaction, which then built and saw a helping hand from a block suggested buy of almost 24k in TUH4 at 102-19+ at 1431ET.
  • With 2YY now -0.5bp on the day (retracing 0.5bps of the bid), the move extends prior steepening with 2s10s +4.5bps at -24bps but only back to late Friday levels.
  • Fed Funds implied cuts have lifted modestly to a cumulative 12bp for March, 56bp for June and 135bp for Dec.
  • Recall the longer end has been under pressure throughout the day. Moves through early European hours could be seen as delayed BoJ impetus and impending EU bond supply from the dual tranche, with January's total bond sale tally of €293bln marking the busiest January in European bond sales ever.
  • Tomorrow sees flash US PMIs, the BoC decision and 5Y supply (after today’s 2Y landed on the screws, with lower bid-to-cover but higher indirect take), before Thursday sees the ECB decision plus first estimates for Q4 US GDP/core PCE and 7Y supply.
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