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US TSYS: Front-end Tsys Yields Underperform Follow Large Block Sell

US TSYS
USBulletMarketsFixed Income BulletsNorth America
  • Treasury yields ended Friday’s session lower with the curve notably flatter. There was a massive block sell trade in 2yr futures early in the US session which accelerated a flattening move that was already under way because of long-end outperformance. TU closed at session lows -02¼ at 102-23+, while TY closed -02 at 108-17+
  • In Treasury options, there was demand for downside hedges via February 10yr structures that expire in a week; standout flows included a $10m at-the-money play targeting a 4.6% 10-year yield.
  • Cash tsys curves flattened with yields closing flat to 5.5bps higher across the curve. The 2yr underperformed, closing +5.3bps at 4.283%, while the 10yr closed 1.5bps at 4.627%. The 2s10s fell 4bps to 34bps, the curve hit it steepest level since 2022 on Tuesday.
  • Generally positive data: Industrial production surprisingly jumped 0.9% M/M (cons 0.3) in Dec after an upward revised 0.2% M/M (initial -0.1%). Utilities may have helped with their 2.1% M/M increase (strongest since May) but manufacturing production was also stronger than expected with 0.6% M/M (cons 0.2%) after an upward revised 0.4% M/M (initial 0.2%).
  • Building permits were a little higher than expected in December at 1483k (cons 1460k) for little change from 1493k in Nov. Housing starts meanwhile, which are more prone to weather disruption, surprisingly jumped to 1499k (cons 1327k) after 1294k in Nov.
  • It is Martin Luther King day today, so no cash tsys trading or data. Focus will be squaring on the Inauguration of President Trump and any executive orders he signs on day 1, while corporate earnings are to kick off on Tuesday.
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  • Treasury yields ended Friday’s session lower with the curve notably flatter. There was a massive block sell trade in 2yr futures early in the US session which accelerated a flattening move that was already under way because of long-end outperformance. TU closed at session lows -02¼ at 102-23+, while TY closed -02 at 108-17+
  • In Treasury options, there was demand for downside hedges via February 10yr structures that expire in a week; standout flows included a $10m at-the-money play targeting a 4.6% 10-year yield.
  • Cash tsys curves flattened with yields closing flat to 5.5bps higher across the curve. The 2yr underperformed, closing +5.3bps at 4.283%, while the 10yr closed 1.5bps at 4.627%. The 2s10s fell 4bps to 34bps, the curve hit it steepest level since 2022 on Tuesday.
  • Generally positive data: Industrial production surprisingly jumped 0.9% M/M (cons 0.3) in Dec after an upward revised 0.2% M/M (initial -0.1%). Utilities may have helped with their 2.1% M/M increase (strongest since May) but manufacturing production was also stronger than expected with 0.6% M/M (cons 0.2%) after an upward revised 0.4% M/M (initial 0.2%).
  • Building permits were a little higher than expected in December at 1483k (cons 1460k) for little change from 1493k in Nov. Housing starts meanwhile, which are more prone to weather disruption, surprisingly jumped to 1499k (cons 1327k) after 1294k in Nov.
  • It is Martin Luther King day today, so no cash tsys trading or data. Focus will be squaring on the Inauguration of President Trump and any executive orders he signs on day 1, while corporate earnings are to kick off on Tuesday.