HSBC recommend selling 2-Year Tsys at.......>

US TSYS: HSBC recommend selling 2-Year Tsys at 0.15%, targeting 0.25%, with a

stop at 0.10%. They reason that "2-Year Tsy yields have converged to the

overnight repo rate. This occurred as the high demand for safe, short-term repo

eased, causing repo rates to move up even as the two-year note yield fell over

recent months. As a result, we think this sector of the yield curve now fully

reflects a lower for longer Fed outlook. Both the DTCC repo rate & the SOFR are

within a few basis points of the IOER rate and the 2-year Tsy yield. This is

likely the bottom of the two-year yield range: a -ve funds rate likely requires

changes to the Fed's governing legislation, which allows it to pay, but not

charge, IOER. This situation is comparable to the '11-'13 period. At that time,

the two-year note typically traded in a 0-20bp spread over the funding rate for

leveraged investors. The Fed's forward guidance should in our opinion be viewed

as stronger today, to reflect the lessons learned from the taper tantrum and the

recent tightening cycle. The trade has a small negative carry and roll down. We

think this modest cost is justified given the asymmetric payoff of a potential

10bp yield increase versus the low potential for a drop in yields."