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Treasuries See Largest Rally Since Mar 2020

US TSYS
  • Cash Tsys have closed early for the largest rally since March 2020 on the newly-identified Omicron Covid variant.
  • It was led by the belly, with the 2Y yield -14.0bps at 0.500%, the 5Y -18.3bps at 1.160%, 10Y -16.3bps at 1.471% and 30Y -13.8bps at 1.821%. This has completely unwound the sell-off earlier this week on the accelerated taper and earlier Fed hike theme.
  • A flight to safety saw 10Y USTs outperform Europe, with the 16bp rally vs 14.5bps in Gilts, 8.7bps in Bunds and 8bps in Oats.
  • TYZ1 futures closed an hour earlier, increasing sharply on the day by 1-12+ to 131-07 on high volumes, having broken the 50-day EMA of 131-05+ and then running up to the first resistance level of 131-08 (Nov 19 high).
  • Separately, the S&P500 closed down -2.3% whilst oil continues to slump with WTI -13.1% and Brent -11.6%.
  • The macro focus next week is Powell testifying on Tue and Wed before non-farm payrolls for Nov on Fri.
  • These are particularly pertinent as money markets have pushed back the second 25bp hike and questions arise whether the Fed will slow rather than accelerate the pace of tapering at the Dec 15 meeting.
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