Tsys Recover From Lows, Look Through Crude Rally

Core fixed income was fairly insulated from today's rally in crude (WTI & Brent trade ~$1.00 above their respective settlement levels at typing), outside of the early and limited foray lower. As we mentioned earlier, the German federal election avoided the formation of a coalition between the 3 left parties, which would have provided the biggest policy shock out of the potential outcomes, and is perhaps supporting the space. Some fiscal uncertainty in DC is potentially playing into the mix, also.

• This allowed Tsys to move off of their early lows, with T-Notes +0-03+ at 132-04, while cash Tsys run little changed to ~1.0bp richer across the curve.
• To recap, Tsys cheapened on the final day of last week, with the major cash Tsy benchmarks finishing little changed to ~4bp cheaper come the bell as 5s and 10s tapped multi-month highs in yield terms. Bund weakness helped drag the Tsy complex lower ahead of NY dealing, before a rebound, with an 8.5K block sale of TU futures adding some weight during the NY morning. The space discounted the latest round of local economic data, while Friday's Fedspeak failed to introduce much in the way of material fresh information as the fallout from Wednesday's FOMC continued to apply some weight to the space.
• U.S. Tsy supply is front-loaded this week, with 2s and 5s set for auction on Monday, while 7s will be auctioned on Tuesday. Monday will also see Fedspeak from Brainard, Williams & Evans, in addition to prelim durable goods data for Aug.