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Rates Near Mid-Apr/Pre-Retail Sales Highs, 50Bp Dec Rate Cut In Play

US TSYS
  • Front month Treasury futures extended session highs in late trade, partially driven by sell-off in stocks, SPX Eminis through 20-day EMA support of 4128.95 to 4097.50 low, just shy of 50-day EMA support at 4086.73.
  • Underperforming sectors: Energy, Materials and Industrials continue to lead the sell-off in SPX, Financials near the middle of the pack while shares of First Republic Bank (FRC) falling 50% in late trade.
  • Treasury curves bull steepening (2s10s +5.964 at -54.276 as 2s surged 13.5 to 103-15 following today's 2Y auction: 3.969% high yield vs. 3.965% WI; 2.68x bid-to-cover. Implied rate cuts into year end surged back over 50bp for Dec'23, Jan'24 -75bp cumulative.
  • The rally in 10s undermines the recent bearish theme with price trading above both the 20- and 50-day EMAs. A continuation higher would signal scope for a climb towards 116-08, the Apr 12 high and expose the key resistance at 117-01+, the Mar 24 high.
  • Wednesday Data Calendar, focus on Wholesale/Retail Inv, Durables and Capital Goods. Next legs of the week's Treasury coupon supply with $24B 2Y FRN (91282CGY1, $36B 17W bill auction at 1130ET; $43B 5Y Note auction (91282CHA2) and $45B 17D bill CMB auction at 1300ET.
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