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Belly, Breakevens Finish Week With A Bang

US TSYS

A busy week highlighted by a surprise acceleration in October CPI and the worst 30Y bond auction in a decade ended as perhaps should be expected: with inflation expectations continuing to rise, and further weakness in 30Y Tsys.

  • 5 Year nominal yields posted their biggest weekly rise since August 2019, rising over 15bp on the week, touching the highest levels of the pandemic cycle.
  • The move came on the back of a big rise in breakevens: 5Y TIPS-implied hit a fresh all-time high of 3.1766% (up nearly 25bp on the week), with 10Y hitting highest since 2006.
  • A very weak UMichigan consumer sentiment figure led US Tsys to day's highs. The 2 to 5 year segment of the curve initially rallied as the data implied consumer weakness potentially denting the case for Fed hikes, but both then retraced their steps.
  • Overall the curve steepened, with 30Ys underperforming coming back from Thursday's cash holiday: the 2-Yr yield is up 0.5bps at 0.5175%, 5-Yr is up 1.8bps at 1.2341%, 10-Yr is up 2.9bps at 1.5784%, and 30-Yr is up 4.9bps at 1.9489%.
  • Dec 10-Yr futures (TY) rose 7/32 at 130-17.5 (L: 130-10 / H: 130-26).
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