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US TSYS: Tsys Futures Edge Higher Following PCE, Belly Of Curve Outperforms

US TSYS
USBulletMarketsFixed Income BulletsNorth America
  • Tsys futures gave back a large portion of Friday's gains, however yields closed lower for the session. Front-end tsys under performed across the curve, re-flattening the curves from its widest levels of the day. Most gains were seen over the US morning session after November PCE data printed below estimates across both headline and core readings.
  • TU closed  +0-00⅜ at 102-22+, while TY closed +0-11+ at 108-31, where we currently trade this morning.
  • Core PCE inflation was slightly softer than expected but still solid trend rates for supercore inflation appear to have helped anchor Fed rate expectations with markets only willing to pare so much of Wednesday’s reaction to a hawkish Fed.
  • Cash tsys curves saw the 2s7s30s fly drop 8.3bps as the belly of the curves outperformed throughout the session. The 2yr closed -0.6bps at 4.31%, 7yr closed -5.5bps at 4.45%, 10yr closed -4.1bps at 4.522%. The 2s10s curve flattened -3.3bps to 20.772.
  • The US has avoided a government shutdown, with the bill gaining enough votes to pass. The pill will now give the US enough funding through to March 14. Bill also provides billions for disaster relief and gives economic aid to farmers, however it does not include a suspension of the US debt limit, which President-elect Donald Trump sought
  • In Treasury options, flows included A large options trade targeting a rise in US 10yr Treasury yields to around 5.4% by January 24 saw 50,000 February 103.00 puts bought for approximately $1.5m. This appears to be new risk, given the low prior open interest of 7,036 contracts at this strike. While in SOFR futures stand out flows included a large block sale in the Dec25 futures over the US morning session
  • Later today we have durable goods orders and new home sales
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  • Tsys futures gave back a large portion of Friday's gains, however yields closed lower for the session. Front-end tsys under performed across the curve, re-flattening the curves from its widest levels of the day. Most gains were seen over the US morning session after November PCE data printed below estimates across both headline and core readings.
  • TU closed  +0-00⅜ at 102-22+, while TY closed +0-11+ at 108-31, where we currently trade this morning.
  • Core PCE inflation was slightly softer than expected but still solid trend rates for supercore inflation appear to have helped anchor Fed rate expectations with markets only willing to pare so much of Wednesday’s reaction to a hawkish Fed.
  • Cash tsys curves saw the 2s7s30s fly drop 8.3bps as the belly of the curves outperformed throughout the session. The 2yr closed -0.6bps at 4.31%, 7yr closed -5.5bps at 4.45%, 10yr closed -4.1bps at 4.522%. The 2s10s curve flattened -3.3bps to 20.772.
  • The US has avoided a government shutdown, with the bill gaining enough votes to pass. The pill will now give the US enough funding through to March 14. Bill also provides billions for disaster relief and gives economic aid to farmers, however it does not include a suspension of the US debt limit, which President-elect Donald Trump sought
  • In Treasury options, flows included A large options trade targeting a rise in US 10yr Treasury yields to around 5.4% by January 24 saw 50,000 February 103.00 puts bought for approximately $1.5m. This appears to be new risk, given the low prior open interest of 7,036 contracts at this strike. While in SOFR futures stand out flows included a large block sale in the Dec25 futures over the US morning session
  • Later today we have durable goods orders and new home sales