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Heading South




Breaches Key Short-Term Support


Late SOFR/Treasury Option Trade

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US TSY FUTURES: *** Fri's modest rate rally not being kind to yld curves,
currently making new 10+ year lows, 5s30s below 26.5 at the moment (after
breaking long-term support around 35.0 back on April 12). Latest:
* 2s10s -1.018, 41.772 (43.155H/41.090L);
* 2s30s -1.521, 55.867 (57.962H/55.867L);
* 5s30s -1.231, 26.458 (28.817H/26.218L);
Weighing in, BNP Paribas strategists posit a "demand-supply mismatch for longer
dated Treasuries is consistent with the recent flattening of the curve and the
increase in stripping activity." While "much of the flattening of the curve
since last year was led by an increase in Fed hikes pricing" BNP said flattening
is likely to accelerate amid increased Japanese insurance portfolio demand if
US$/Yen recedes to 104-105 lvl vs. 109.18 currently. BNP expects continued
flattening in 5s and 10s vs. 30s, while 2s10s "shouldn't invert" unless a
"faster pace of hikes" requiring "confidence about a higher r*" is priced in.
BNP doesn't "sense any pressing need for the Fed to hike faster than what is
priced in."

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