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Treasuries Pare Losses On BANC-PACW News, 25bp Hike Seen Locked In Tomorrow

US TSYS
  • Cash Tsys head towards the end of the session having pared losses after news that the Banc of California is in advanced talks to buy PacWest drove the KBW banking index to session lows and saw PACW shares at one point fall 27%. Yields sit 2-3bps higher across the curve.
  • Earlier cheapening pressure had been seen after upward revisions to IMF global growth and core CPI forecasts in its updated WEO plus strong data releases with house prices beating and a strong increase in the Conference Board consumer survey. These factors had helped overcome a brief bid seen after a particularly sizeable 25k block buyer in FVU3 early on.
  • The 5Y auction tailing by 0.4bps with mixed internals didn’t wildly change the narrative.
  • TYU3 has lifted to 111-22+ for closer to the middle of the day’s range but is still 11+ ticks lower. It’s low of 111-17+ stopped short of support at 111-11 (61.8% retrace of Jul 7-18 rally) as the corrective pullback extends.
  • Ahead of tomorrow’s FOMC decision, near-term meeting implied rates are back almost unchanged, with +24.5bp for tomorrow building to a cumulative +35.5bp for the 5.44% terminal in November having very briefly printed closer to a 50/50 chance of a second additional hike. SOFR futures have pulled back off session cheaps but SFRU3/Z4 of -133bps is still on track for the smallest close since Jul 7 as it more than reverses the post-US CPI hit from Jul 12.
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