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Tsy Yields Grind Higher, Focus on Next Week's fOMC

US TSYS

Tsys remain weaker after the bell - near early session lows after some choppy first half trade. Tsys bounced after latest Employment Cost Index came out in-line w/ estimates at 1.2% (1.3% prior) but with a relatively larger moderation in private sector wages within, PCE in-line as well at +0.4%. (down-revision to core PCE weaker than expected but was all rounding).

  • Futures reverse course, extend lows following 10Y Block sale at 0836:03: -8,700 TYZ2 111-05.5, sell through 111-07 post-time bid.
  • Protracted round of support followed, yields fell from 4.1681% high to 4.0791% low in lead-up to U-Mich sentiment (1Y inflation exp up to 5% from 4.7% prior) while Much weaker than expected pending home sales in Sept (-10% M/M vs cons -4.0%), suggesting the slide in existing home sales isn't done yet.
  • Tsy gradually retreated from midmorning highs through the second half with no obvious headline driver as 30YY climbed back around 4.1287%, yield curves bear flattening (2s10s -5.893 at -42.050).
  • Deferred Eurodollar calendar spds extend inversion to new cycle lows this morning: indicating a larger ease in current hikes over the latter half of 2023: Mar'23/Jun'23 -0.095; Dec'22/Red Dec'23 at -0.415, Mar'23/Red Mar'24 at -0.725, Jun'23/Red Jun'24 at -0.815.
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