Debt Ceiling Talks Remain Deadlocked; Curves Extend Inversion

Rates extended modest session highs in a late risk-off move as White House debt ceiling negotiators departed the capitol. Stocks extended session lows (SPX Eminis tap 4154.50) in turn as no resolution to avoid default somewhere on or after June 1 yet reached.

• Treasury Jun'23 10Y futures marked a session high of 113-22 (+7), while yield slipped to 3.6861% low, scaling back to 113-18 amid reports that negotiators will resume talks this evening.
• Short end continued to underperform, Jun'23 2Y futures -2 at 102-15.12; 2s10s curve -3.574 at -64.273 - amid higher market expectation of a near-term default.
• Separately, Fed Chairman Powell has left the New Democrat Coalition lunch recently, lack of notable headlines from the closed door meeting other than to note debt-ceiling was not part of the discussion.
• Despite the bounce, Treasury futures bear cycle extends. The break of 113-30+ last week, the Apr 19 low and a key support, has strengthened a bearish theme. Today’s move lower opens 112-30 next, a Fibonacci retracement.
• On the upside, initial resistance is seen at 113-30+ ahead of the 50-day EMA, at 114-25. A break of the average is required to signal a potential reversal.