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US TSYS: Tsys Yields Rise, Canada & Mexico Tariffs Delayed

US TSYS
USBulletMarketsFixed Income BulletsNorth America
  • Tsys futures closed mixed on Monday, curves twist-flattened with front-end yields cheaper fueled by inflationary risk from tariffs and a risk-off bid coming into the long-end on growth concerns, while projected rate hike pricing through mid-year cooled. Large swings occurred following headlines Trump will delay tariffs on Mexico, while later in the session he announced tariffs will be delayed on Canada. TU closed -01¾ at 102-24¼, while TY closed +03+ at 108-30+
  • There was a large bullish tsys options trade with expectations for a 10yr yield drop below 4% by Feb. 14. A trader bought 43,213 US 10-year Week 2 112.75 calls, with the strike implying a yield of ~3.95%. The $675,000 premium indicates a fresh bet on a bond rally. There was also a week 1 US bond put trade which targeted the 30yr yield rising to about 4.88% ahead of Wednesday's expiry.
  • Cash tsys yields closed higher across all tenors with the 2yr +5.2bps at 4.249%, while the 10yr closed +1.6bps at 4.555%. The outperformance by long-end yields saw the 2s10s, 5s30s drop 5.5bps and 4bps.
  • The fed's Goolsbee cautioned that the Fed should slow the pace of rate cuts due to rising uncertainty, particularly from Trump’s newly announced tariffs on Mexico, Canada, and China. While tariffs on Mexico and Canada have been postponed, Goolsbee highlighted the challenge of distinguishing between economic overheating and temporary trade-related effects. His comments align with Atlanta Fed’s Bostic and Boston Fed’s Collins, who also advocate a patient approach after 100bps of cuts in late 2024.
  • Today we have Factory Orders & Durable Goods Orders
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  • Tsys futures closed mixed on Monday, curves twist-flattened with front-end yields cheaper fueled by inflationary risk from tariffs and a risk-off bid coming into the long-end on growth concerns, while projected rate hike pricing through mid-year cooled. Large swings occurred following headlines Trump will delay tariffs on Mexico, while later in the session he announced tariffs will be delayed on Canada. TU closed -01¾ at 102-24¼, while TY closed +03+ at 108-30+
  • There was a large bullish tsys options trade with expectations for a 10yr yield drop below 4% by Feb. 14. A trader bought 43,213 US 10-year Week 2 112.75 calls, with the strike implying a yield of ~3.95%. The $675,000 premium indicates a fresh bet on a bond rally. There was also a week 1 US bond put trade which targeted the 30yr yield rising to about 4.88% ahead of Wednesday's expiry.
  • Cash tsys yields closed higher across all tenors with the 2yr +5.2bps at 4.249%, while the 10yr closed +1.6bps at 4.555%. The outperformance by long-end yields saw the 2s10s, 5s30s drop 5.5bps and 4bps.
  • The fed's Goolsbee cautioned that the Fed should slow the pace of rate cuts due to rising uncertainty, particularly from Trump’s newly announced tariffs on Mexico, Canada, and China. While tariffs on Mexico and Canada have been postponed, Goolsbee highlighted the challenge of distinguishing between economic overheating and temporary trade-related effects. His comments align with Atlanta Fed’s Bostic and Boston Fed’s Collins, who also advocate a patient approach after 100bps of cuts in late 2024.
  • Today we have Factory Orders & Durable Goods Orders