Belly Driven Sell Off On Second Term For Powell

TYZ1 off the late NY lows, last dealing at unchanged levels of 130-00.

• To recap, the reappointment of Fed Chair Powell for a second term atop the central bank provided the more hawkish potential outcome (at least in terms of market perception vs. the alternative of Governor Lael Brainard, who was nominated as Vice Chair to succeed Clarida), which weighed on Tsys on Monday. The major cash Tsy benchmarks were 5-10bp cheaper come the close, with the belly leading the sell off, while the long end outperformed on the day, driving the 5-/30-Year yield spread to within touching distance of the YtD flats. The Eurodollar strip also sold off aggressively. A bid in the broader dollar ensued, while firmer than expected existing home sales data was observed. This environment resulted in ~1bp tails at both the 2- & 5-Year auctions with the cover ratios sliding lower (below their recent averages), while dealer participation moved above the recent averages, providing a further source of pressure. Futures roll activity supported broader volume.
• Flash PMIs from across the globe will headline ahead of NY hours, while the Thanksgiving-related front-loaded supply will continue, with 7-Year Tsy & 2-Year FRN supply due.