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Market Roundup: Bonds Off Early Lows, Curves Extend Inversion

US TSYS

Tsys trading weaker ahead midday, well off early session lows Tsy yields tapped multi-year highs: 2s at 3.9655% high; 5s at 3.7124%; 10s at 3.5158% high; 30Y at 3.5679%). Light volumes (TYZ2 <660k w/ Japan out for one day holiday (Respect for the aged) and London banks closed for the Queen's funeral.

  • No obvious headline or block driver as futures bounced off lows, long end outperforming as curves extended inversion (2s10s currently -4.770 at -47.169 vs. -47.894 low; 5s30s -5.515 at -17.818 vs. -19.689 low).
  • Plausible driver: carry-over curve flattening/steepener unwinds from deep pocket accts firm up opinion on forward policy/recession chances ahead Wednesday's FOMC (includes Summary of Economic Projections, Fed Chairman Powell news conf 30 minutes after the 1400ET annc); 75bp hike widely anticipated, option trades seeing unwind of 100bps hike bets, while debate over 50-75bps moves in Nov and Dec meetings continues.
  • Technicals for Dec 10Y futures currently at 114-12 (-11): Treasuries remain soft with the contract trading at its recent lows. Trend signals continue to highlight a bearish theme and sights are on the key support at 114-06, the Jun 14 low. A break of this level would confirm an important technical break and highlight a resumption of the broader downtrend, exposing the 114-00 handle initially. Firm resistance is at 116-26, the Sep 2 high.
  • Current cross-asset levels: Stocks mildly weaker, SPX off lows w/ESZ2 at 3880.0 (-10.0), Crude weaker but well off lows (WTI -0.36 at 84.75 vs. 92.15 low) as is Gold (1672.15 -2.91).

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