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Rate-Hike Bets Cool Slightly Ahead Next FOMC Policy Annc

US TSYS
Firmer by the close, Tsy futures recover a fraction of Monday's sell-off, settling in to near middle of the session range, yield curves mildly steeper as markets awaited Wednesday's FOMC policy annc.
  • FOMC is expected to announce a tapering of net purchases of Treasuries by USD10 billion a month and mortgage securities by USD5 billion a month, ending the USD120 billion monthly QE program by mid-2022. Note: decent short end bid from accts paring rate-hike bets (Eurodlr Reds (EDZ2-EDU3) up 0.105-0.110 late)
  • Second half of week makes up for lack of data in first half: ADP private employ data early Wed (+400k est) followed by Tsy quarterly refunding at 0830ET. Last but not least: Friday's October employment data: +450k mean estimate.
  • Early bid on foreign support: Rates traded firmer with the exception of steady 30Y ultra-bonds on the open, yield curves steeper (5s30s over 80.0 after see-sawing near low 70.0s since Friday). Sources report decent foreign real money buying in 2s-5s overnight vs. light deal-tied selling, Asian real$ buying out the curve.
  • Early trade turned two-way in the short end as rates pare modest gains: central bank selling 3s and separately buying 5s. Out the curve: leveraged acct selling 20s while central bank buy 30s. Ultra-bond futures managed gains after trading weaker much of the first half.
  • The 2-Yr yield is down 4.7bps at 0.4519%, 5-Yr is down 2.9bps at 1.1476%, 10-Yr is down 1bps at 1.5453%, and 30-Yr is down 0.1bps at 1.9569%.
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