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Several Factors Weighing on US Rates

US TSYS
  • Treasury futures bouncing off lows as markets remain sensitive to Middle East tensions. Latest headline from Axios that Israel has "no choice but to retaliate against Iran: spurring latest bounce.
  • Futures had extended session lows this morning (TYM4 -26.5 at 107-27.5 vs. 107-18.5 low) more than reversing Friday's risk-off rally tied to tensions in the Middle East. Several factors at play:
  • Rates rallied with a strong safe-haven bid last Friday amid simmering Middle East tensions going into the weekend. Iran did indeed retaliate against Israel with some 200 drone attacks largely targeting military sites, many were repelled.
  • Tsy yields also rebounded as US$ bounced against the Yen, the latter falling to lowest lvl since 1990 as Japan said they would take steps (intervene) to counter.
  • Tsy curves bear steepening, 2s10s +5.090 at -32.623, short end still weaker as projected rate cut pricing recedes: May 2024 at -2.6% vs. -5.7% late Friday w/ cumulative -.6bp at 5.322%; June 2024 at -19.9% vs. -22.6% (compares to -55.1% pre-CPI) w/ cumulative rate cut -5.6bp at 5.273%. July'24 cumulative at -13.6bp vs -14.6bp earlier, Sep'24 cumulative -24.8bp vs. -25.7bp.
  • Drop in rate cut pricing sees stocks reverse early support amid several rounds of program selling, S&P Eminis +10.50 at 5178.00.
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