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Risk Appetite Returns After Early US$ Bid

US TSYS SUMMARY
Early risk aversion that carried over from Monday evaporated by midmorning on the back of strong US$ buying that helped trigger strong rebound in equities and sell-off in Gold. Risk-on reprieve w/stocks higher: ESU1 +76.0 late.
  • Long end support completely evaporated by midmorning, Bonds leading sale to new session lows on wide ranges and heavy volumes (TYU already 2M), yld curves bear steepen after Mon's sharp bull flattening. Current 10YY at 1.2169% after falling to 1.1260% earlier (early Feb level), 30YY currently 1.8745% vs. 1.7781% low.
  • Trading desks report prop and fast$ accts sold 5-10s early, steepeners in 2s and 5s vs.10 and 30s, real$ selling 30s, deal-tied selling in shorts to intermediates. Some long end buying from dealers in 30s more recently.
  • Early bid: desks cited familiar risk-off drivers (virus variant spd, geo-political, peak growth/inflation in rear-view). Bonds gained after Housing Starts come out stronger than expected (1.643M vs 1.590M) while Building Permits come out weaker than expected (1.598M vs. 1.696M) - down 5.1%/month.
  • Eurodollar futures: Huge selling in lead quarterly EDU1 futures: over 130,000 EDU1 sold down to 99.855-.85, small print at 99.845 (-0.020) in early trade.
  • The 2-Yr yield is down 2.4bps at 0.1915%, 5-Yr is down 3.1bps at 0.6738%, 10-Yr is up 1.8bps at 1.2069%, and 30-Yr is up 4.8bps at 1.8675%.
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