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US TSYS SUMMARY: BMO analyst Ian Lyngen said the Treasuries "selloff into
month-end hasn't materially altered our take on the Treasury market and, if
anything, the underlying causes of the downtrade only further solidify our
range-trading thesis in 10s and 30s. We remain bearish on the front-end of the
curve (out to 5s) as the Fed's insistence on tightening policy only finds
further support in this week's series of events."
- He adds, "Let's face it, stocks apparently only have one direction to go
(higher), we saw core-PCE at +0.2% MoM in both September and October, and tax
reforms are effectively a foregone conclusion. If that's the case, Thursday's
price action offered reinforcement of our interpretation of the market's current
reaction function to positive news - a flatter 5s/30s curve. We maintain that if
this remains the case, the outperformance of the long bond will contain 10-year
yields as well, emphasizing the risk of a much flatter curve. In the 'race to
zero' we're watching the 5s/10s curve as an instructive bellwether (now at less
than 28 bp)."