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Yields Continue to Decline, Strong 5Y Sale

US TSYS
  • Treasury futures holding near late session highs after the close. Early impetus from Richmond Fed Mfg Index (-11 vs. -3 est, -5 prior) and Business Conditions (0.0 vs. -9 prior) lowest reading since April after three monthly declines helped get the ball rolling.
  • Tsys continued to advance after decent $58B 5Y Tsy Note sale traded through (3.801% high yield vs. 3.812% WI, 2.50x bid-to-cover) with 10Y yields falling to 3.7833% - lowest level since mid July.
  • After March'24 10Y futures climbed to an intraday high of 113-11.5, focus turned to 113-12+ a Fibonacci projection point: 1.764 proj of the Oct 19 - Nov 3 - Nov 13 price swing.
  • Projected rate cuts for early 2024 gains momentum on the rally: January 2024 cumulative -4.5bp at 5.283%, March 2024 chance of rate cut -83.9% vs. -80.5% this morning w/ cumulative of -25.5bp at 5.073%, May 2024 pricing in a full 25bp cut with cumulative -52.4bp at 4.804%, June'24 cumulative -78.8bp at 4.539%. Fed terminal at 5.325% in Jan'24.
  • Thursday Data Calendar: Weekly Claims, Retail/Wholesale Inventories and Home Sales. US Treasury supply wraps up 2023 with $80B 4W and 8W Bill auctions at 1130ET, $40B 7Y Note auction (91282CJQ5) at 1300ET.
  • No scheduled Fed speakers; Congress closed for the holidays.

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