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Yields Up, Risk-On, Getting Comfortable With Tapering

US TSYS
Decent overall trade volume by Fri's close with TYZ1>1.6M, as markets continue to price in a taper annc for the November FOMC. Meanwhile, support for bonds evident since Wed's policy annc evaporated, yield curves rebounding: 5s30s nearly 10bps off late Wed's lows as it tapped 103.145bp high Friday.
  • Limited react to Aug new home sales +1.5% to 0.740M SAAR; July new home sale up-revised to 0.729M SAAR. Major focus on Fri October 8 Sep employ data two weeks from now as a prerequisite for Nov FOMC taper annc.
  • Session headlines from KC Fed George did not covering new ground, but reiterated tapering asset purchases sooner rather than later as better, Bbg:
    • HAVE LONG WAY TO GO, STIMULUS FROM OUR POLICY TO LINGER
    • STARTING TAPER PROCESS IS IMPORTANT, NEED FLEXIBILITY
  • With month end fast approaching, next week's Tsy auctions jammed into the first half of the week: $82B total 13- and 26W bills Monday in addition to $60B 2Y and $61B 5Y notes on Monday.
  • Incoming supply generated some pre-auction short sets, while October Tsy serial options expiry generated two-way hedging as 10s and 30s close to pinning strikes in USV 161 and TYV 132 strikes.
  • The 2-Yr yield is up 1.3bps at 0.2736%, 5-Yr is up 0.7bps at 0.955%, 10-Yr is up 2.8bps at 1.4578%, and 30-Yr is up 4.6bps at 1.9854%.
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