Treasury Yields Inch Higher, Bank Risk Moderates

Tsy futures held modestly weaker in late trade, yield curves bear flattening (2s10s -3.019 at -49.761, well off early high of -40.451) amid ongoing focus on bank risk.

• Early support for stocks soured midday after White House Deputy Press Secretary Dalton indicated to reporters that President Biden will continue to decline to meet with House Speaker McCarthy for debt limit negotiations until House Republicans release a FY24 budget.
• A late session bounce in KBW Bank index (BKX) off midday lows (79.77) to 80.48 (+.10) helped underpin SPX Emini futures in late trade: ESM3 at 3996.0 -11.25.
• The Federal Reserve is monitoring the risks that higher interest rates pose to the balance sheets of banks after losses on a large portfolio of Treasuries helped precipitate the collapse of Silicon Valley Bank, the Fed’s vice chair of supervision Michael Barr told Congress Tuesday.
• “We are monitoring the financial system, monitoring the banking system, we’re looking at interest rate risk and liquidity risk across the banking system,” Barr said. “The banking system is sound and resilient. Depositors are safe. Most banks are highly effective in managing interest rate risk and liquidity risk.”
• Items in focus for Wednesday: Pending Home Sale; Fed speak NY Fed Supervision head Dobbeck will take moderated questions at a Bankers Assn event; US Treasury $22B 2Y FRN and $35B 7Y Note auctions.