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Paring Losses After Fresh YTD Yield Highs Across The Front-End And Belly

US TSYS
  • Treasuries have pulled back a little further off lows, with TYM4 at 109-27+ off 109-24+.
  • It has seen a limited test of the bear trigger at 109-25+ (Feb 23 low), with a sustained clearance having scope to then open 109-14+ initially (Nov 28, 2023 low).
  • Volumes are limited though, only nudging over 1mn for approx. 70% of recent sessions for the time of day.
  • In cash space, 5Y yields touched fresh YTD highs after the 2Y did so earlier on, and 10s stopped just 0.25bps shy of their high of 4.3486%.
  • As it is, cash Tsy yields currently sit 0.5-3bp higher, with 2s10s climbing 2bps to -40bps to just hold within last week's range.
  • Today’s corporate issuance has been touted as a driver for the sell-off, whilst a highlight for limited flow saw FVJ4 106.00 puts targeting a ~10bp move higher in 5YY to ~4.45% by Friday’s expiry.
  • Fed swaps briefly showed more than a 50% likelihood of no change in the June meeting. CME’s FedWatch currently shows 50.8% chance of a 25bp cut and 3.4% of a 50bp cut.
  • Upcoming focus is on the BoJ decision overnight, with Nikkei adding to recent reports across multiple newswires that the BoJ is to end YCC and ETF purchases along with the heavily sourced exit of negative interest rates. The 20Y re-open sees some issuance focus tomorrow but with the FOMC decision on Wed looming large.
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