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Flow-Led Bear Flattening With 2024 Rate Cuts Also Trimmed

US TSYS
  • Cash Tsys head towards the end of the session with a bear flattening as the front end underperforms in a move that was kickstarted by sizeable flow just before 1200ET with an almost 43k block in TUU3.
  • Some of those losses were pared heading into the 2Y auction, which saw a small tail with details generally stronger than the five-auction average but weaker than June’s, before some two-way trade which leaves 2YY +5.2bps and 10YY +1.8bps.
  • Today’s limited data has helped the flattening at the margin, with continued service price pressures in the S&P Global US preliminary PMI along with softer than expected business activity. Weaker activity was also seen in European PMIs which has helped counter some potential impetus from China stimulus.
  • The long-end sell-off has been further limited by technicals, with TYU3 setting a low of 111-31+ as it probed support at 112-00 (Jul 20 low), with cumulative volumes still lagging at currently just shy of 1M. A more concerted push could open 111-22+ (50% retrace of Jul 7-18 rally) after which lies 111-11 (61.8% retrace of the same move).
  • Fed implied rates only creep up 0.5bp for the next two meetings coming so close to Wednesday’s decision (+24.5bp priced). There have been larger increases further out though with the Nov terminal now seen after a cumulative +34.5bps (+1.5bp) and 2024 cuts trimmed with 59bp from terminal to Jun’24 (from 62bp) and 132bp from terminal to Dec’24 (from 137bp).
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