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Short End Support Wanes Late, Projected Yr End Rate Cuts Ease

US TSYS
Treasury futures pared gains in the second half, curves bending flatter (2s10s -4.490 at -51.623 vs. -45.947 high) as short end rates reverse course, 2s and 5s trading weaker after the bell.
  • As such, projected rate cuts for late 2023 have eased slightly. September cumulative -26.9bp (-30.7bp earlier) at 4.800%, November cumulative -52.0bp (-56.1bp earlier) at 4.549%, Dec'23 cumulative -76.5bp (-81.2bp earlier) at 4.304%, while Jan'24 cumulative is running at -100.9bp vs. -105.9bp this morning. Fed Terminal currently at 5.07% in Jun'23 this morning.
  • Treasury futures had dipped briefly following the BOE 25bp rate hike this morning , but quickly bounced after regional banks took the focus off the BOE rate hike announcement. Risk-off as PacWest falls 26% following 10Q filing mentions of asset quality, deposit decline and heavy goodwill impairment loss of $1.38B.
  • Curves bull steepened following Core PPI inflation in April was on balance close to expected if not slightly stronger, with ex food & energy stronger but weaker when also stripping out trade services.
  • Meanwhile, Treasury reacted positively after a decent $21B 30Y auction (912810TR9) trades through with 3.741% high yield vs. 3.755% WI; 2.43x bid-to-cover vs. 2.36x prior month. Indirect take-up 72.43% vs. 69.12% prior; direct bidder take-up 17.36% vs. 19.80% prior; primary dealer take-up 10.21% vs. 11.09%.

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