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Bonds Near Late Session Highs, Tsy 7Y Note Sale Well Received

US TSYS
  • Treasury futures are drifting near late session highs, climbing steadily since marking lows at midmorning, discounting earlier comment from Chairman Powell at ECB CB forum that consecutive rate hikes are not off the table spurred fast sell interest in short to intermediates.
  • Modest two-way trade this morning after higher than expected Retail inventories data: MoM (0.8%, 0.2% est; 0.3% prior/rev), Wholesale Inventories in-line MoM (-0.1%, -0.1% est; -0.3% prior/rev), Advance Goods Trade Balance (-$91.1B, -$93.8B est; -$97.1B prior).
  • Curves climbed off deeper inversion briefly after a decent $35B 7Y note auction (91282CHJ3) traded through: 3.839% high yield vs. 3.847% WI; 2.65x bid-to-cover vs. 2.61x last month. Indirect take-up 75.31% vs. 72.30% prior; Direct take-up: 16.55% vs. 17.29% prior; Primary dealer take-up to 8.14% vs. 10.42% prior auction.
  • Despite the bounce, bears still hold sway at current levels. Recent pullback in 10s held inside the recent range and the contract remains in consolidation mode. The trend outlook is bearish.
  • Meanwhile, market confidence of a hike at the July 26 FOMC has climbed to 79% with implied rate of +19.8bp to 5.267%. September cumulative of +24.4bp at 5.315% while November is pricing in just over a 25bp hike with cumulative at 29.3bp at 5.364%. Fed terminal at 5.385% in Nov'23 this morning.
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