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Policy Pivot, 10Y Tsy Yield Falls to 3.8835% Low

US TSYS
  • Cash Tsys remain stronger on heavy volumes after the close (TYH4>2.8M), 10Y yield fell to 3.8835% 5-month low as markets continue to react to Wed's FOMC steady rate annc, acknowledging inflation has eased but reiterated the Fed is "prepared to tighten policy further, if appropriate".
  • Tsy futures receded slightly w/ EGBs, Gilts, position adjusts following the BOE and ECB steady rate annc's, little to no change to guidance.
  • Still bid, Tsys pared support after lower than expected Initial Jobless Claims (202k vs. 220k est, 221k prior revised from 220k), Continuing Claims (1.876M vs. 1.879M est, prior 1.856M revised from 1.861M);
  • Higher than expected Retail Sales Advance MoM (+0.3% vs. -0.1% est, prior -0.2% revised from -0.1%), Retail Sales Ex Auto MoM (0.2% vs. -0.1% est) Retail Sales Control Group (0.4% vs. 0.2% est) and
  • Higher than expected Import Price Index MoM (-0.4% vs -0.8% est), YoY (-1.4% vs. -2.1% est); Export Price Index MoM (-0.9% vs. -1.0% est), YoY (in line w/ -5.2% est).
  • Tsy 10Y futures traded at 112-19 (+22.5) after the close - still well within technical levels: resistance at 112-28.5 (1.618 proj of the Oct 19 - Nov 3 - Nov 13 price swing). Initial support well below at 111-09+ (High Dec 7 and a recent breakout level).
  • Projected rate cuts for early 2024 gained momentum: January 2024 cumulative -5bp at 5.283%, March 2024 chance of rate cut climbs to -81.9% vs. -62% late Wednesday w/ cumulative of -25.5bp at 5.078%, May 2024 fully pricing in the first cut with cumulative -50.8bp at 4.824%, June'24 cumulative -76.8bp at 4.565%. Fed terminal at 5.33% in Feb'24.
  • Friday Data Calendar: Fed Speak Returns, IP/Cap-U, S&P PMI, TIC Flow
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