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Decent 2Y Note Sale Acceptance of Two Rate Hikes in 2022

US TSYS
Yield curves continued to flatten Tuesday, short end underperforming though rate futures finished mixed near late session highs.
  • Tsys extended session lows after better than expected New Home sales for August surged +14% to 800k; Consumer confidence climbed 113.8 vs. 109.8 in Sep.
  • Weakness short lived as rates climbed steadily off post-data lows to session highs midway through the second half. Contributing factors for bounce and renewed curve flattening: Block/buy 7.5k FVZ1 at 121-21.5; Block 2s10s flattener: -13,573 TUZ1 109-21.25 vs. +6,977 TYZ1 130-16.5.
  • Tsy futures holding near top of session range/mixed with 2s and 5s still mildly weaker after $60B 2Y note auction's (91282CDD0) small stop with 0.481% high yield vs. 0.482% WI; 2.69x bid-to-cover bounce vs Sep's 2.28x (lowest since 2008) well over five auction avg: 2.54x. Decent performance a sign of acceptance of two rate hikes next year one desk posited.
  • Equities made new all-time highs (ESZ1 4590.0) after headlines made the rounds the global chip shortage may have crested. US$ posted strong gain as well, DXY +.136 to 93.949 late.
  • By the bell, 2-Yr yield is up 1.3bps at 0.4478%, 5-Yr is up 0.8bps at 1.1795%, 10-Yr is down 1.4bps at 1.6167%, and 30-Yr is down 3.2bps at 2.0492%.
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