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Off Early Lows, Curves Steepen, Remain Sensitive to Middle East Tension

US TSYS
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  • Treasury futures remain sensitive to Middle East tensions Monday, bouncing off lows late morning after headline fromAxios that Israel has "no choice but to retaliate against Iran.
  • Futures had extended session lows this morning (TYM4 107-18.5) more than reversing Friday's risk-off rally tied to tensions in the Middle East before rebounding to 108-00 - trading sideways through the close. Several factors at play:
  • Rates rallied with a strong safe-haven bid last Friday amid simmering Middle East tensions going into the weekend. Iran did indeed retaliate against Israel with some 200 drone attacks targeting military sites, many were repelled with few casualties.
  • Tsy yields also gained as US$ bounced against the Yen, the latter falling to lowest lvl since 1990 as Japan said they would take steps (intervene) to counter.
  • Tsy curves bear steepened, 2s10s +7.184 at -30.529, short end still weaker as projected rate cut pricing recedes: May 2024 at -4.7% w/ cumulative -1.2bp at 5.317%; June 2024 at -19.8% vs. -22.6% (compares to -55.1% pre-CPI) w/ cumulative rate cut -6.1bp at 5.286%. July'24 cumulative at -14.4bp vs -16.9bp earlier, Sep'24 cumulative -25.9bp vs. -28.8bp.
  • Look ahead: Tuesday's data calendar includes Building Permits, IP/Cap-U, and Fed Speak with Chairman Powell moderating a Q&A session with BoC head Macklem.
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  • Treasury futures remain sensitive to Middle East tensions Monday, bouncing off lows late morning after headline fromAxios that Israel has "no choice but to retaliate against Iran.
  • Futures had extended session lows this morning (TYM4 107-18.5) more than reversing Friday's risk-off rally tied to tensions in the Middle East before rebounding to 108-00 - trading sideways through the close. Several factors at play:
  • Rates rallied with a strong safe-haven bid last Friday amid simmering Middle East tensions going into the weekend. Iran did indeed retaliate against Israel with some 200 drone attacks targeting military sites, many were repelled with few casualties.
  • Tsy yields also gained as US$ bounced against the Yen, the latter falling to lowest lvl since 1990 as Japan said they would take steps (intervene) to counter.
  • Tsy curves bear steepened, 2s10s +7.184 at -30.529, short end still weaker as projected rate cut pricing recedes: May 2024 at -4.7% w/ cumulative -1.2bp at 5.317%; June 2024 at -19.8% vs. -22.6% (compares to -55.1% pre-CPI) w/ cumulative rate cut -6.1bp at 5.286%. July'24 cumulative at -14.4bp vs -16.9bp earlier, Sep'24 cumulative -25.9bp vs. -28.8bp.
  • Look ahead: Tuesday's data calendar includes Building Permits, IP/Cap-U, and Fed Speak with Chairman Powell moderating a Q&A session with BoC head Macklem.