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Off Post-Payrolls Lows, 3Y Auction To Offer Demand Test Amidst Volatility

US TSYS
  • Treasuries sit a little off session lows owing to the intraday pullback in equity futures and tech names continuing to be watched, but hold most of an extension beyond yesterday’s second half selling pressure.
  • The day’s move is aided by a rebound in Japanese equities, the RBA holding along with a slightly more hawkish tone and SF Fed’s Daly (’24 voter) late yesterday characterizing the labor market as reasonably solid.
  • Today’s data is limited to international trade -- we likely have to wait for Thursday’s weekly jobless claims for the next US macro steer -- which leaves sentiment in the driving seat, especially with earnings season still underway, until the $58bn 3Y auction at 1300ET will be watched particularly closely as a litmus test for demand in volatile markets.
  • In the interim, emergency cut odds have mostly dissipated and September cut pricing has dipped to just under 50bps with odds of a consecutive 50bp cut in November also fading.
  • TYU4 is at 113-19 (- 15+) off earlier lows of 113-12, having at one point retraced more than 76.4% of the post-payrolls rally to 115-03+. Firmer support isn’t seen until 112-21 (Aug 2 low). Volumes are once again extremely elevated at 735k.
  • Cash yields sit between 3.3-6.5bp higher, with increases led by 7s. 2s at 3.971% haven't been able to push above 4%. with a high of 3.9977% (4.12% pre-payrolls).
  • 2s10s at -12.4bps consolidates yesterday’s pullback off brief disinversion for the first time since mid-2022.
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