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Near Late Lows Ahead Friday's PCE, ECI Data

US TSYS
Front month Treasury futures gradually extended session lows after after the Treasury $35B 7Y note auction (91282CGZ8) tailed again: 3.563% high yield vs. 3.552% WI; 2.41x bid-to-cover vs. 2.39x last month.
  • The initial impetus for Thursday's jump in yields (10s top 3.5357%) was the uptick in inflation as core PCE Q1 advance of 4.94% annualized for the core PCE deflator (cons 4.7%) implies a March reading bouncing back to 0.50% M/M (current consensus 0.3), from 0.30% in Feb after 0.52% in Jan.
  • Jun'23 10Y futures dipped below 20-day EMA of 115-00.5 to 114-21 session low as focus turned to 114-18.5 50-day EMA. Key support has been defined at 113-30+, the Apr 19 low. A break of this support would reinstate the recent bearish theme.
  • Heavy short end selling saw curves bear flattening (2s10s hit -57.777 low). As a result of re-acceleration of March inflation, implied rate hikes in the near term have firmed, May at 22.6 while Jun cumulative climbs to 28.7 at 5.116.
  • Tighter policy projections for year end are well off Tuesday highs: November cumulative currently -8.8bp (-31.1bp Tue) at 4.741, Dec'23 cumulative -29.5bp (-52.1bp Tue) at 4.534. Meanwhile, Jan'24 cumulative sits at -51.9bp vs. a full three 25bp cuts late Tuesday.
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