US TSYS: FED CHAIR POWELL'S TESTIMONY REKINDLES 50BP CUT TALK

US TSY SUMMARY: Tsys trading mixed after the bell. No longer transitory -- yld

curves bull steepening after rates surged following Fed chair Powell's

semiannual testimony signaling likelihood of coming rate cut amid persistent

"risk of weak inflation". 

- A couple dealers (MS, UBS), meanwhile, grew louder on their call for 50bp cut

at the next FOMC. Short end surged to reflect the dovish tone so much that

probability of 50bp cut climbed back to 25% from zero this morning.

- Decent, but not exceptionally heavy volume on the day (TYU just over 1.75M in

late trade) amid robust buying in shorts to intermediates after better selling

coming into the session, real$ selling long end, curve flattener unwinds. 

- Tsys came under pressure briefly after the latest $24B 10Y note auction

re-open (9128286T2) tailed -- awarded

2.064% rate (2.130% in June; 3.085% avg) vs. 2.055% WI; 2.41 bid/cover (2.49

previous).

- The 2-Yr yield is down 8.5bps at 1.8216%, 5-Yr is down 5.3bps at 1.8259%,

10-Yr is down 0.5bps at 2.0595%, and 30-Yr is up 3.3bps at 2.5729%.

US TSY FUTURES CLOSE: Also mixed after the bell, short end well bid but off

first half highs after rates gapped to session highs following Fed chair

Powell's semiannual testimony signaling likelihood of coming rate cut amid

persistent "risk of weak inflation." Yld curves surge steeper, update:

* 3M10Y  +6.322, -12.282 (L: -22.367 / H: -10.992)

* 2Y10Y  +8.153, 23.564 (L: 15.292 / H: 23.737)

* 2Y30Y  +11.68, 74.651 (L: 62.577 / H: 74.679)

* 5Y30Y  +8.138, 74.126 (L: 65.495 / H: 74.415)

Current futures levels:

* Sep 2-Yr futures up 4.5/32  at 107-12.625 (L: 107-06.25 / H: 107-13.12)

* Sep 5-Yr futures up 6/32  at 117-23.5 (L: 117-10 / H: 117-26.25)

* Sep 10-Yr futures up 4.5/32  at 127-14 (L: 126-27.5 / H: 127-18.5)

* Sep 30-Yr futures down 16/32  at 154-19 (L: 153-29 / H: 155-08)

* Sep Ultra futures down 1-14/32  at 176-02 (L: 175-12 / H: 177-11)

US TSYS/10Y: Latest $24B 10Y note auction re-open (9128286T2) tailed -- awarded

2.064% rate (2.130% in June; 3.085% avg) vs. 2.055% WI; 2.41 bid/cover (2.49

previous). Indirects drew 60.76% vs. 65.7% prior (51.34 avg), directs 12.85% vs.

13.61% (12.41% avg), and 26.39% for dealers vs. 20.82% prior (36.25% avg).

US EURODLR FUTURES CLOSE: Trades mixed by the bell -- Whites through Greens

little off highs but well bid as the potential of 50bps rate cut is leaking back

into short end after Fed Chair Powell's semi-annual testimony. Long end of strip

trades lower in the second half, in line with sharp steepening in Tsy yld

curves. Current White pack (Sep 19-Jun 20): 

* Sep 19 +0.070 at 97.935

* Dec 19 +0.080 at 98.020

* Mar 20 +0.080 at 98.20

* Jun 20 +0.070 at 98.285

* Red Pack (Sep 20-Jun 21) +0.030 to +0.065

* Green Pack (Sep 21-Jun 22) +0.005 to +0.025

* Blue Pack (Sep 22-Jun 23) -0.01 to steady

* Gold Pack (Sep 23-Jun 24) -0.025 to -0.015

US DOLLAR LIBOR: Latest settles

* O/N +0.0046 at 2.3547% (+0.00065/wk)

* 1 Month +0.0005 to 2.3691% (+0.0026/wk)

* 3 Month -0.0012 to 2.3395% (+0.0281/wk)

* 6 Month +0.0056 to 2.2623% (+0.0525/wk)

* 1 Year +0.0122 at 2.2857% (+0.0941/wk)

US SWAPS: Spds mostly wider, short end gapping late as Tsy yld curves continue

to steepen out. Decent spd and rate paying in short end to intermediates,

receiver unwinds from bank portfolios. Current levels:

Time (ET)   2Y Swap/Mid    5Y Swap/Mid   10Y Swap/Mid   30Y Swap/Mid

Wed 1500    +2.38/4.62     +1.81/-1.25    +1.00/-5.25   -0.12/-31.88

1230        +0.88/3.12     +0.75/-2.31    +0.06/-6.19   -0.50/-32.25

1100        +0.12/2.38     +0.44/-2.62    +0.06/-6.19   -1.19/-32.94

0900        +0.75/3.00     +0.69/-2.38    +0.00/-6.25   -0.94/-32.69

Wed Open    +0.56/2.81     +0.31/-2.75    +0.25/-6.00   -0.38/-32.12

Tue 1500    -0.25/2.25     -0.38/-3.12    -0.56/-6.38   -0.25/-31.88

STIR: Federal Reserve Bank of New York EFFR for prior session:

* Daily Effective Fed Funds Rate: 2.41%, volume: $75B

* Daily Overnight Bank Funding Rate: 2.40%, volume: $176B

US TSYS: REPO REFERENCE RATES: (rate, volume) 

* Secured Overnight Financing Rate (SOFR): 2.45%, $1.178T

* Broad General Collateral Rate (BGCR): 2.45%, $508B

* Tri-Party General Collateral Rate (TGCR): 2.45%, $483B

OUTLOOK: *** Data/speaker calendar (prior, estimate):

11-Jul 0830 06-Jul jobless claims (221k, 221k)

11-Jul 0830 Jun CPI (0.1%, 0.0%)

11-Jul 0830 Jun CPI Ex Food and Energy (0.1%, 0.2%)

11-Jul 1030 05-Jul natural gas stocks w/w

11-Jul 1000 Fed Chair Powell Senate Banking Committee testimony, Washington

11-Jul 1100 NY Fed Pres Williams, on Albany region community revitalization

11-Jul 1300 US Tsy $16B 30Y Bond auction re-open (912810SH2)

11-Jul 1330 Fed VC Quarles, Special Patriot Award Ceremony Recognizing Alice

Rivlin, D.C.

11-Jul 1330 NY Fed Pres Williams, keynote address, University of Albany - SUNY

11-Jul 1400 Jun Treasury budget balance (-$207.8B, $4.0B)

11-Jul 1630 10-Jul Fed weekly securities holdings

11-Jul 1700 Mn Fed Pres Kashkari, town hall in Aberdeen, South Dakota, Q&A

PIPELINE: $2.5B Panasonic 3-part launched

Date $MM Issuer/Rating/Desc/Maturity/Yld; Priced *; Launch #:

07/10 $2.5B #Panasonic $1B 3Y +75, $1B 5Y +85, $500M 10Y +105

07/10 $2B *Export Development Canada 3Y +8

Eurodollar/Tsy options:

Eurodollar options, Pit/screen:

Block, 1434:42-:54ET,

* -30,000 Sep 75/77 put spds, 1.75 vs. 97.925/0.17%

* -5,000 Sep 77/78/80 put flys, 3.0

* +5,000 Dec 80/81/82 call flys, 1.25

* -7,000 Aug 80/81/82 call flys, 1.5

* +5,000 short Aug 87 calls, 1.0

* +10,000 Sep 80 calls, 5.5

* +25,000 Sep 81 calls, 2.5

* +15,000 Dec 83/85 call spds .25 over the Mar 90/92 call spds

* +13,000 Oct 83 calls w/ Dec 80/83 1x2 call spds, 9.0 total db

* -15,000 Sep 77/78 put spds, 4.0 vs. 97.915/0.20%

Latest trade, 1x1x4x4 call condor sale at 8.0

* 13,000 Dec 77/80 call spds 14.0

* 52,000 Dec 83/85 call spds, 1.5

* 11,000 short Dec 80/81/82 put trees, 1.0 vs. 98.325/0.14%

* -11,000 short Dec 80/81/82 put trees, 1.0 vs. 98.325/0.14%

* -39,000 Oct 78/80 put spds, 5.5

* +5,000 short Sep 80/82 put spds, 6.5

Latest trade, large call condor

* +40,000 Aug 85/86/87/88 call condors, 2.0 adds to 10,000 BLOCKed at 0932:38ET

* -4,000 Dec 80 straddles, 33.5 to 33.0

* -14,000 Aug 78 straddles, 13.5

* +15,000 Mar 73 puts, 1.0

* +10,000 Sep 76/77 put spds 1.5

* -9,000 Sep 75/76 put spds w/ Green Sep 78/80 call spds 11.75 total cr

* 5,000 Sep 75 puts, cab on screen

* 2,000 Sep 76/77/78 put flys, 2.5

* Update, over 50,000 Sep 76 puts, .75

* -7,000 Aug 78 straddles, 13.5

* 5,000 Red Dec'20 92/95 call spds, 3.5

* +2,500 Dec 82/83 call strip, 11.0

* -10,000 Aug 76/77 put spds, 1.2-0.75

* +4,000 Sep 78/80/82 call flys, 1.0 pre-testimony text release

Screen trade,

* +10,000 short Jul 81/82 put spds, 3.5

* 20,000 Dec 83/85 call spds, 1.25

Overnight Blocks

* 40,000 short Dec 78/80/81 put trees, 1.0

* 5,000 Dec 78/81 call spds, 9.0

Tsy options, Pit/screen:

* 3,200 TYU 130 calls, 8/64

* -5,000 TYU 126.5/127.5 call spds, 26/64 vs. 127-13.5/0.24%

* 5,000 wk2 TY 128 calls, 3/64 earlier

* 2,500 FVU 118.25 calls, 14.5/64

* 2,485 wk2 FV 117.25/117.5 put spds, 4/64

* 4,300 TYQ 126 puts, 3/64 earlier

* 1,250 TYQ 126.5/127 put spds, 5/64 over TYQ 128.5/129.5 call spds

* -5,000 FVU 117.75 straddles, 36.5

* +4,000 TYU 130 calls, 7/64

* Update, just over 75,000 TYQ 126 puts trade on screen, 3/64 low after large

50k buy at 8/64 earlier

* +50,000 TYQ 126 puts, 8/64 (open interest 92,229 coming nto session

--MNI Chicago Bureau; tel: +1 312-431-0089; email: bill.sokolis@marketnews.com

[TOPICS: MTABLE,M$U$$$,M$$FI$,MN$FI$,MN$FX$]