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Tsys Futures Slide Post-US CPI, Yields Surge As Rate Cut Expectations Diminish

US TSYS
TYH4 is currently trading at 109-20, down 00 from New York closing levels. Treasury futures saw a large sell off on the back of stronger than expected US CPI data of 3.9% YoY vs 2.9% YoY, post the initial reaction the market was largely quiet, while slowly grinding lower into the close, before reaching new lows of 109-17 after the bell.
  • Mar'24, 10Y futures further slid after the US close, hitting 109-17, a level not seen since late Nov'23. This aligns with the initial technical support of 109-17 (50.0% of the Oct 19 - Dec 27 bull phase). However, as we enter the Asian session, we are slightly above these levels. A break below 109-17 could indicate further downward movement to 109-05+, the lows from Nov 28, and 108-19+ (61.8% of the Oct 19 - Dec 27 bull phase).
  • Cash yields pushed higher 10-20bps post-US CPI, with the 2Y yield up 18.4bps at 4.658% and the 10Y yield rising by 13.5bps to 4.314%, reaching the Dec 1 level. Treasury curves bear-flattened (2s10s -4.853 at -34.727), with the short end underperforming as projected rate cuts dissipate in the wake of the hot inflation measure.
  • Projected rate cut pricing continues to diminish: March 2024's chance of a 25bp rate cut currently stands at -10.6% (-18.3% late Monday), with a cumulative of -2.6bp at 5.302%; May 2024 at -28.9% vs. -53.0% late Monday, with a cumulative cut of -9.9bp at 5.230%; June 2024 at -57.7% vs. -80.3% late Monday, with a cumulative -24.3bp at 5.086%. The Fed terminal is at 5.3275% in Feb'24.
  • Looking ahead, Wednesday's data focuses on PPI revisions, with Fed speakers Chicago Fed Goolsbee and Fed VC Barr scheduled.
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