TD Securities note that "financial..........>

US TSYS: TD Securities note that "financial conditions have tightened but still

remain easy. We do not think that the recent volatility derails the Fed from

continuing to hike gradually (and letting the portfolio run off). The market may

well price out some Fed hikes, but we think that Dec 2019 implied Fed funds

should level out near 2.3% (last seen during the February risk-off). That should

provide some anchor to frontend rates and 2-Year Treasuries should find a floor

around 2.2%. If political risk subsides, 2-Year Treasuries can rise to 2.5%."

- TD go long $25k DV01 of 5-Year BEs at 203.5bp, targeting 217bp with a stop at

190bp, they would look to add to the position if 5-Year BEs move toward 195bp.

- They believe that further risk-off should continue to bull steepen the 5s30s

curve to about 45bp, but as discussed above, at some point the front-end will

look floored. Further risk-off should then bull flatten the curve. On the other

hand, relief around the Italy situation should bear flatten the curve to about

25bp as the moves over the last two weeks are reversed. Once the 2-Year crosses

2.5%, however, we think that further risk-on moves should bear steepen the

curve.