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Bull Flattening, Knock-On Effect Of BoC's Hawkish Forward Guidance

US TSYS
Knock-on effect of Bank of Canada's hawkish policy annc Wed (steady rate but ending QE/moves to reinvestment phase pushes forward rate liftoff from 2H22 to midyear) weighed heavily on short end rates, particularly Eurodlr Sep'22 to Red Jun'23, trading 0.085-0.100 lower at one point. A bit of "tail wags dog" scenario desks quipped, while inflation concerns supported the long end.
  • Heavy volumes (TYZ1>2.2M, USZ>1.4M) as Tsy yield curves bull flattened to new 18 month lows, 30YY tapped 1.9307% low.
  • Active second half players include dealer and prop accts selling 2s-3s, fast and Real$ +5s-10s, Real$ and bank portfolio buying 30s, deal-tied unwinds and curve steepener stop-outs as well. After a large 2s5s steepener Block around midday, a 5s/30s ultra bond flattener block crossed.
  • Post-Note auction support: Tsy futures gapped higher after 2.3bp stop -- decent $61B 5Y note auction (91282CDG3) with 0.157% high yield vs. 1.180% WI; 2.55x bid-to-cover surge vs Sep's 2.37x (lowest since 2008) well over five auction avg: 2.38x. Indirect take-up: 64.78% new 2021 high after 54.3% 2021 Low last month.
  • Equities had been posting modest gains in late trade sold off after Bbg headline noted: SENATE FINANCE CHAIRMAN WYDEN SAYS BILLIONAIRES TAX IS NOT DEAD.
  • The 2-Yr yield is up 4.8bps at 0.4872%, 5-Yr is down 3.9bps at 1.1351%, 10-Yr is down 8.2bps at 1.5256%, and 30-Yr is down 10.2bps at 1.9383%.
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BulletMarketsFixed Income Bullets Bank of Canada Market NewsHomepage

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