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Most Gains Reversed With 5s Outperforming After Softer PMIs

US TSYS
  • Cash Tsys have almost fully reversed earlier gains across the curve, with 5s holding onto a small rally (-0.4bp) as they outperform after softer growth implications from both European and US preliminary PMIs (services rather than mfg for latter).
  • The US PMIs did however see a picking up in service price pressures, which has helped 2s further underperform (+1.7bps) ahead of the 2Y auction at 1300ET.
  • Those price pressures have had very little impact on near-term Fed implied rates though coming ahead of Wednesday’s FOMC decision, still +24bp building to a cumulative +33.5bp for a Nov terminal.
  • TYU3 trades back near unchanged at 112-08 off a session high of 112-17+. It continues what appears a corrective pullback, nearing support at 112-00 (Jul 20 low) after which lies 111-22+ (50% retrace of Jul 7-18 rally).

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