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Bank-Tied Safe Haven Rate Bid Recedes in Late Trade

US TSYS
  • Decent gains held by Treasury futures after the bell were well off first half highs, 30Y futures trading in a narrow range since late morning were trading 132-12 +19 after the bell.
  • Treasury futures opened broadly higher after another retreat in European banks overnight (Deutsche Bank -12%, Commerzbank -9%), global rates rallied amid persistent worries over bank funding and surge in Foreign and International Monetary Authority repo facility take up to $60B from zero the week prior.
  • Treasury 2Y yields fell to the lowest levels since September 2022: 3.5594% just two days after marking a one week high of 4.2480% early Wednesday, while yield curves bull steepened to the least inverted levels since October (2s10s taps -26.706).
  • In line with the overnight bank sell-off and safe haven bid projected rate CUTS gained momentum. Fed funds implied hike for May'23 receded to around 6bp, followed by projected rate cuts through year end in early trade: Jun'23 cumulative -15.6bp to 4.631%, Jul'23 -49.3bp to 4.295% while Dec'23 cumulative neared -100.0.
  • Safe haven short end support moderated through the second half as stocks recovered (SPX eminis +15 in late trade), however: Sep'23 SOFR futures traded around 95.80 late (+0.040) vs. 96.11 early session high, while Dec'23 cumulative receded to -87.7 at 3.926%.
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