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Yld Curves Bull Flatten, Mkt Prices Rate Liftoff Sooner Than Expected

US TSYS
Tsy futures traded strong Tuesday, bonds outperforming as yield curves bull-flattened back to levels not seen since late September. No single driver at play, trading desks cite array of reasons for move including Tsy supply hedging, Asian and domestic real$ acct selling in short - to intermediates.
  • Plausible driver: rate-hike expectations getting pushed forward as taper annc on schedule for November -- last Fri's NFP miss not enough to forestall Fed's hand. Keep in mind, as Clarida said earlier today, green light for taper does not mean green light for rate liftoff.
  • Large Lead-Quarterly Eurodollar futures sale: -30,000 EDZ1 99.825 (-0.005) prior to latest comments from Fed VC Clarida (echoing Bostic earlier: Fri's Sep NFP miss does not derail taper annc in November).
  • Tsy auctions, 3- and 10Y sales both stopped through:
    • Treasury futures holding gains after $58B 3Y note auction (91282CDB4) stopped-through: 0.635% high yield vs. 0.637% WI; 2.36x bid-to-cover vs. 2.46x 5-auction average.
    • Tsy futures continue to inch higher after $38B 10Y note auction re-open (91282CCS8) stops through with 1.584% high yield vs. 1.588% WI; 2.58x bid-to-cover on par with Sep's 2.59x but well above five auction avg: 2.53x.
  • The 2-Yr yield is up 2.8bps at 0.3459%, 5-Yr is up 1.2bps at 1.071%, 10-Yr is down 3.7bps at 1.5751%, and 30-Yr is down 6.3bps at 2.1011%.
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