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Toeing The Line on Accelerated Taper

US TSYS
Yield curves plumbed new depths, 5s30s 55.25 late (54.739L) last seen March 2020 as Fed speakers continued to back Fed Chair Powell's accelerated asset purchase taper message from Tue.
  • Taper est twice as fast as exp (early 2022 start/done by Mar) a precursor to rate hikes. How much and how quickly? Eurodollar Dec'24 futures (98.31) inverted 1-2bp vs. balance of Blue strip (EDZ4-EDU5) as mkt prices in rate CUTS by late 24 after as many as five 25bps hikes starting in 1Q22.
  • Session recap: Tsy mixed early, long-end pared gains after lower than exp wkly claims 222k (240k est). Early trade: prop and fast$ two-way in 2s and 5s, real$ buying 10s and 30s. Steepener unwinds while option desks eyed conditional bear curve flatteners. Short end weaker but off lows by midday amid real$ buying 2s and 3s, two-way in 10s and deal-tied rate locks in 2s-10s.
  • Bond yields gained after Atl Fed Bostic reiterated Chair Powell on pace of tapering: "IN FED'S INTEREST TO WRAP UP TAPER TOWARD END OF 1Q". Ahead of Fri's employ data, BOSTIC: EMPLOYMENT IS EVOLVING IN A WAY THAT IS QUITE POSITIVE" Bbg.
  • Late: Additional deal-tied selling after Daimler Trucks 8pt jumbo launched $6B in debt, late fast- and real$ selling in intermediates, domestic real$ bought 5s, bank portfolio selling 30s.
  • The 2-Yr yield is up 6.5bps at 0.6166%, 5-Yr is up 7.6bps at 1.2112%, 10-Yr is up 4.9bps at 1.4528%, and 30-Yr is up 3.4bps at 1.7731%.
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