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Extending Lows, Anticipating Deluge in Bill Issuance

US TSYS
Treasury futures trading modestly lower, extending overnight lows (TYM3 -7 at 114-11.5), while curves bend steepen (2s10s +1.307 at -58.532). Modest carry over pressure in the short end as projected rate cuts for later in the year consolidate (Dec'23 at appr -50.0bp vs. nearly a full point on May 4).
  • Markets remain sensitive to debt ceiling headlines, though not as apparent in rates as equities as stocks continue to gain on hopes over a "doable" debt ceiling plan by Sunday.
  • Treasury futures appear to uncouple from the improved risk appetite as markets focus on a likely deluge in bill issuance as the Treasury moves to increase cash buffers following a debt ceiling resolution.
  • "Estimated at well over $1 trillion by the end of the third quarter, the supply burst would quickly drain liquidity from the banking sector, raise short-term funding rates and tighten the screws on the US economy just as it’s on the cusp of recession," Bloomberg reports. "By Bank of America Corp.’s estimate it would have the same economic impact as a quarter-point interest-rate hike.
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