July 26, 2022 18:52 GMT
- Treasuries have reversed course today ever since TYU2 cleared support at 120-11 (Jul 22 high) and stopped just short of the bull trigger at 120-16+ (Jul 6 high), touching an intraday high of 120-15+ in the process with below average volumes ahead of tomorrow's FOMC.
- The sell-off in the second half of the session extended through the latest second tier data, possibly putting more weight on the beat for the Richmond Fed manufacturing index despite misses for Conf. Board consumer confidence and new home sales, before slowing somewhat after the 5Y auction stopped through. More likely was the fact the clearance of prior levels seen after Friday's significant US PMI miss was a step too far.
- In cash space, the twist flattening around 7s, with 2YY +3bps and 10YY -1.5bps, drives inversion in 2s10s to -25.5bps (-4bps) just off earlier new post-2000 lows. The 3M to 10Y spread saw a modestly larger bounce off intraday lows of 16.5bps but at 24bps is still at pre-pandemic flats.
- Finally, there has ultimately been little change in breakevens on the day, leaving the 5Y at 2.59%, off early July lows of circa 2.50% but still down 40bps since the June FOMC.
- Earnings releases from Microsoft and Visa due after close today before preliminary durable goods and then obviously the FOMC decision tomorrow.
UST 2Y (white), 10Y (yellow), 2s10s (green) and 3M to 10Y (pink)Source: Bloomberg