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3Y Auction Demand Helps Pare Losses; Debt Limit Talks Up Next With CPI Tomorrow

US TSYS
  • Cash Tsys have pared earlier losses for limited moves on the day, with the reversal coming shortly ahead of the 3Y auction and then ramping up on surprisingly strong demand with a large 2.8bp stop through and the highest bid-to-cover since March 2018. It sees 3s outperform on the day with yields +0.8bps at typing vs +2.7bps for 2Y, +1.2bps for 5Y and +1.9bps for the 10Y.
  • Gov Jefferson (voter, and seemingly in a good position for the Vice Chair pick) offered little new to go on whilst NY Fed’s Williams broadly stuck to FOMC guidance from last week’s decision for someone typically at the more dovish end of the committee.
  • TYM3 at 115-04+ trades close to lows of 115-01+ on subdued cumulative volumes of 850k, with a push lower potentially opening the 50-day EMA of 114-26.
  • Fed Funds implied rates have nudged higher on the day but still see last week’s 25bp hike as the last of the cycle (+2.5bp priced for June) before 21bp cut to Sep and a cumulative 67bps to 4.41% at year-end.
  • Next up sees Biden meeting with congressional leaders at 1600ET. Both the White House and McCarthy have said a short-term debt extension is not the plan (Reuters reporting McCarthy specifically referring to Sep 30) whilst McConnell says Biden must negotiate with McCarthy for a bipartisan spending deal.
  • US CPI is in focus tomorrow – full preview here.
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