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Free AccessRate Locks & Fed Hike Premium Lead To Bear Flattening
TYZ1 operating a little off late NY lows, last -0-06 at 130-00.
- Weakness in the front end/belly led yields higher on Thursday, with bear flattening observed. 3s cheapened by ~8bp on the day, while 30-Year yields were ~1.5bp higher. From a technical perspective, 10-Year yields finished just shy of their May 13 high (1.704%).
- Corporate supply (headlined by an AerCap $21bn 9-parter) was a particular source of weight for the belly of the curve, with freshly embedded rate hike premium, evidenced in Eurodollar futures, also weighing.
- 5-Year TIPS supply saw very strong demand, with BMO noting that "the strong demand for TIPS served to reinforce the notion that investors are fully engaged in seeking inflation protection. It's tempting to suggest the 2.4 bp stop-through for the 5-year TIPS auction is an 'at any price' event in terms of paying up to offset the risk of inflation - to a large extent this is the case. There is a strong case to be made that the market is getting ahead of itself until there is greater clarity on the supply chain fallout; but that hasn't been an inhibition to press real yields lower." 5-Year breakevens hit all-time wides on Thursday.
- Domestic data was generally positive, with the downtick in weekly claims a little more favourable than expected, while existing home sales data provided a solid beat.
- Flash PMIs from across the globe will be seen ahead of Friday's NY session, with an address from NY Fed President Williams due in Asia-Pac hours. We will also hear from Fed's Powell & Daly during NY hours, ahead of the Fed blackout period.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.