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Markets Roundup: Debt Deal Optimism After US AAA Rating Warning

Treasury futures traded steadily weaker since late morning amid generally positive word from debt ceiling negotiators that a deal can be agreed upon by as early as tomorrow.
  • Treasury 10Y futures finishing near late session lows at 112-16.5 after breaching several levels of support: next focus on 111-31 76.4% retracement of the Mar 2 - 24 rally. At the moment, 10Y yield has climbed .0774 to 3.8193%, highest in two weeks. Curves extended inversion, 2s10s falling to -73.245, the lowest since March 15.
  • Overnight volatility: rates surged overnight, reacting to negative ratings watch warnings from agencies Fitch and DBRS Morningstar if the US defaults on their debt obligations. House speaker McCarthy quick to respond with optimism that a deal can be struck in time.
  • Fast two-way post data: Treasury futures trading lower after weekly claims came out less than expected (229k 245k est; claims 1.8M est), GDP higher than expected (+1.3% vs. 1.1% est).
  • More notable upside revisions came from other domestic demand (non-resi investment and government) plus a sizeable boost in changes in inventories (albeit still dragging -2.1pp annualized on the quarter), offset by the previous boost from net trade being revised away (latest contribution exactly 0.00pps).
  • Reminder, Friday sees early close ahead Monday's Memorial Day Holiday, Floor closes at 1300ET, Globex at 1600ET. Markets closed Monday, Globex re-open at 1700ET.

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