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Soft PPI, Higher Wkly Claims and Strong 30Y Sale Rekindle Rate Cut Hope

US TSYS
  • Treasuries and the US$ has recovered from the post-FOMC reversal as today's softer PPI and higher weekly claims rekindled 50bp in rate cut pricing by year end.
  • Treasury futures added to pre-release gains after lower than expected PPI final demand at -0.2% vs. 0.1% MoM (2.2% YoY vs. 2.5% est), Ex Food and Energy MoM 0.0% vs. 0.3% est, (YoY 2.3% vs. 2.5%). Meanwhile, weekly jobless claims higher than expected at 242k vs. 225k est, continuing claims 1.82m vs. 1.795M.
  • Rates extended highs (TYU4 110-27, +17) after a strong $22B 30Y auction reopen (912810AU4) stopped 1.6bp through: 4.403% high yield vs. 4.419% WI; 2.49x bid-to-cover vs. 2.41x in the prior month.
  • Treasury futures are now back to early April levels: Sep'24 10Y marks session high of 110-27 (+17) -- looking to test technical resistance at 110-27.5 (1.00 proj of the Apr 25 - May 16 - 29 price swing). Next resistance at 111-09 (High Apr 1).
  • Cash yields extend lows: 5s -.0930 at 4.2230, 10s -.0815 at 4.2345%, 30s -.0715 at 4.4037%, while curves look mixed: 2s10s -0.327 at -44.327, 5s30s +2.063 at 17.803.
  • Short end support sees rate cut projections near pre-FOMC levels (*): July'24 at -12% (-14%) w/ cumulative at -3bp (-3.8bp) at 5.298%, Sep'24 cumulative -20bp (-20.9bp), Nov'24 cumulative -29.3bp (-31.7bp), Dec'24 -50.4bp (-50.7bp).
  • Friday data focus: Fed Out of Blackout, Import/Exp Prices and UofM inflation expectations.
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