Tsys Bear Flattening, With A May Fed Hike Back On The Table

The Treasury curve has been bear flattening overnight, with equities stabilizing on diminished fears of banking sector stresses.

• Along with First Citizens' takeover of SVB, a Bloomberg sources piece published over the weekend ("US Mulls More Support for Banks While Giving First Republic Time") has lightened the mood, and S&P futures have been clinging on to 4,000 so far this morning.
• 2Y Tsy yields have moved through the overnight high (3.9128%), hitting 3.9255% just before 0600ET, back to levels last seen late last Thursday morning (up 16bp on the day). 10Y yields meanwhile up 9bp at session high 3.4658%.
• We're back to about 50/50 chance of a 25bp Fed hike at the May meeting, vs Friday's low implying a pause.
• End-year Fed funds is priced 22bp higher at 4.11%, vs a Friday low of 3.56% - so about 82bp of cuts implied from peak-to-end-2023, vs well over 100bp seen last week.
• The weekend's Fed communications highlight was Kashkari saying banking sector stresses "brings us closer" to recession but that it's too soon to tell what it meant for the May FOMC decision.
• Today's lone scheduled speaker is Gov Jefferson discussing monetary policy at 1700ET.
• Supply is highlighted by $42B 2Y Note sale.
• A thin data slate to start the week, with Dallas Fed Manufacturing at 1030ET.