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USDCAD TECHS

Remains Vulnerable

AUDUSD TECHS

Northbound

US TSYS

Late SOFR/Eurodollar/Treasury Option Roundup

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Early Bond Rout Levels Out, Inflation Concerns Remain

US TSYS

Tsys and equity markets extending session lows in late morning trade after posting decent gains on the open.

  • Several factors contributing to early reversal off highs: bonds initially followed Gilts after UK PM Liz Truss televised conf re: mini-budget comments, reversing planned freeze on corporate tax, comments on sacking of Chancellor Kwarteng (more on that shortly).
  • Bonds gapped lower/extend session lows after U-Mich 1Y inflation exp climbed to 5.1% vs. 4.6% est - first time since March. Yield curves bounced off deepest inversion since April 2000 (2s10s -55.877) briefly before short end support waned.
  • Lead quarterly EDZ2 futures extending session lows (-0.055 at 94.900) as KC Fed George and VC Cook express need for ongoing rate hikes to combat inflation, SF Fed Daly sees Fed "likely to raise interest rates as high as 5% to tackle stubborn inflation and keep restrictive policy for some time, some of her most hawkish comments to date." Chances of 75bp hikes at both Nov and Dec FOMC meeting gaining.
  • Bond yields leveled out in the second half while equities continued to march lower. Currently, 2-Yr yield is up 3.5bps at 4.4981%, 5-Yr is up 6bps at 4.2606%, 10-Yr is up 5.8bps at 4.0019%, and 30-Yr is up 5.3bps at 3.9691%.

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