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FI Surges and Fed Rate Expectations Slump On Regional Bank Contagion Fears

US TSYS
  • Cash Tsys have pared most recent gains but nevertheless see huge rallies on the day, with the 2YY 11bps off session lows but still down more than -30bps on Friday’s close. The Asia open saw a solid bid despite the Fed unveiling a funding facility to relieve strain from SVB’s failure but the initial rally was small compared to the subsequent acceleration through European hours as significant spillover was seen in EU FI.
  • Latest STIR: Pricing just a 20bp hike for the March 22nd FOMC (vs 43bps Wed close) and a terminal of 4.88% with the Jun meeting for -40bps on the day (vs a Wed close high of 5.69% for the Sep meeting). It’s seen followed by almost 40bps of cuts to 4.49% by year-end.
  • President Biden is seen speaking on maintaining a resilient banking system and protecting the economic recovery after 0800ET.
  • 2YY -31.7bps at 4.270%, 5YY -21.4bps at 3.747%, 10YY -13.9bps at 3.560% and 30YY -5.1bps at 3.655%..
  • TYM3 trades +1-08 higher on huge volumes with 1.3M vs 350k average for the time of day. A number of Fibo retracement points have been cleared with an earlier high of 114-29+ forming initial resistance, after which lies 115-03+ (76.4% retrace of Feb 2 – Mar 2 bear leg). Initial firm support lies 112-31+, the 50-day EMA.
  • No data on the docket with data focus instead on tomorrow’s CPI report.
  • Bill issuance: US Tsy $57B 13W and $48B 26W bill auctions (1130ET)
  • Fed in media blackout for macro/mon pol issues.
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