Tsys Off Lows, Curves Steepen, Remain Sensitive to Middle East Tension

Treasury futures remain sensitive to Middle East tensions Monday, bouncing off lows late morning after headline from Axios that Israel has "no choice but to retaliate against Iran. Tsy yields also gained as US$ bounced against the Yen, the latter falling to lowest lvl since 1990 as Japan said they would take steps (intervene) to counter.

• Treasury futures drifted lower on Monday, breaking through support levels and tapping a low of 107-18+ post retail sales data before recovering some of the move lower to close at 107-28+, post the bell the contract has continued its move higher and as Asia logs in we trade + 05+ at 108-02+.
• Looking at technical levels: Initial support lays at 107-16+ (2.50 proj of Dec 27 - Jan 19 - Feb 1 price swing), a break here would open a move to 107-07+ (76.4% of the Oct - Dec ‘23 bull leg). While to the upside resistance holds at 108.25+ (Apr 12 high), a break back above here would open up 109-02/26+ (Apr 8 low / Apr 10 high)
• Cash Treasury curve bear-steepened on Monday with yields 2-9bps higher. The 2Y yield was +2.4bps at 4.920%, 10Y +8bp to 4.601%, while the 2y10y was +2.593 at -32.120
• Projected rate cut pricing recedes: May 2024 at -4.7% w/ cumulative -1.2bp at 5.317%; June 2024 at -19.8% vs. -22.6% (compares to -55.1% pre-CPI) w/ cumulative rate cut -6.1bp at 5.286%. July'24 cumulative at -14.4bp vs -16.9bp earlier, Sep'24 cumulative -25.9bp vs. -28.8bp.
• Looking ahead: Building Permits, IP/Cap-U, and Fed Speak with Chairman Powell moderating a Q&A session with BoC head Macklem.