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Further Steepening With More Issuance On Tap, 10YY At Pre-NFP Levels

US TSYS
  • Treasuries have seen a further steepening today as the long end extends a sizeable sell-off seen yesterday from a surprising rise in consumer confidence and double 2Y and 5Y auction tails.
  • Continued issuance with today’s 7Y note auction should remain a driving force, whilst data is more secondary ahead of tomorrow’s second Q1 GDP release.
  • Cash yields sit between 0.4bps lower (2s) and 1.6bps higher (30s). Having cleared 4.50% yesterday, 10Y yields are now at 4.56% off an earlier high of 4.574% and are back to pre NFP levels from May 3.
  • 2s10s sits at -39bps, with the day’s level adjustment amplified by the new 2Y benchmark. It has lifted off Friday’s low of -48.3bps for its highest since May 20/21.
  • TYM4 dipped further early in Asia hours but has since held a narrow range, at 108-04+ vs an earlier low of 108-02.
  • The contract is in retracement mode after yesterday’s clearance of a key support at 108-15 (May 14 low), opening the round 108-00 and 107-25+ (Fibo retracement of Apr 25 – May 16 rally).
  • Some notable overnight flow looking for an extension of the recent steepening: FVM4 6.0K lots blocked at 105-06.75 (suggest buyer) and TYM4 3.9K lots blocked at 108-04 (suggest seller), which we would point to a ~$240K DV01 steepener.
  • Data: MBA mortgage data May 24 (0700ET), Richmond Fed mfg May (1000ET), Dallas Fed services May (1030ET)
  • Fedspeak: Williams on community services (1345ET, no text), Beige Book (1400ET), Bostic on economy (1900ET, no text)
  • Note/bond issuance: US Tsy to sell $28bn 2Y FRN re-open, 91282CKM2 (1130ET), US Tsy to sell $44bn 7Y notes, 91282CKU4 (1300ET)
  • Bill issuance: US Tsy to sell $60bn 17-wk bills (1130ET)
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