US DATA: Dallas Fed Weekly Economic Index Remains Near Historic Highs

Treasuries outperformed global peers Tuesday, with the curve ending with bull flattening after early weakness.

• Treasuries were on the back foot overnight, continuing from Monday's bearish price action as the US and Iran failed to extend their tentative "ceasefire". Front WTI jumped $3/bbl on the reopen and would remain in the $85/bbl area all day.
• Once again, the long end found itself under pressure, with the session highs reached around 8am ET: 10Y yields hit 4.7458% to nudge above Jul 31 highs to a post-Jan 2025 high, while 30s ticked up to a post-2007 high 5.286%. 5s30s hit a post-May steep of 94.8bps.
• From a futures perspective, the session low of 108-09 was still well above the bear trigger level of 107-31+ (Jul 31 low).
• Yields again neared the session highs around the cash equity open at 9:30 am ET when President Trump announced that there were no talks or conversations with Iran.
• However, yields would descend from then on, with a pullback in equities (on semiconductor weakness) making the richer bond space looking relatively attractive. Indeed, the afternoon yield decline came despite fresh highs in crude.
• Data was plentiful but mixed though on the whole not really a market mover. Import prices were much weaker than expected in July, ADP weekly employment firmed slightly vs the previous update, the NY Fed August services sector survey was solid but softer than July; July residential data was very mixed with poor starts and pending home sales but solid building permits; and industrial production edged higher in July.
• Latest levels: the 2-Yr yield is flat at 4.1751%, 5-Yr is down 0.7bps at 4.3674%, 10-Yr is down 1.6bps at 4.706%, and 30-Yr is down 2bps at 5.2858%. Sep 10-Yr futures (TY) up 3/32  at 108-17.5 (L: 108-09 / H: 108-19).
• Wednesday's data calendar is light (weekly MBA mortgage applications) and there are no scheduled Fed speakers, but we do get a 20Y Bond auction, and the release of the July FOMC meeting minutes (MNI preview here).

• RES 4: 1.4175 High Jul 13
• RES 3: 1.4129 High Jul 28  
• RES 2: 1.4080 High Aug 4 and 5 
• RES 1: 1.4005 50-day EMA  
• PRICE: 1.3891 @ 16:32 BST Aug 18
• SUP 1: 1.3849/45 200-dma / Low Aug 17
• SUP 2: 1.3817 61.8% retracement of the May 1 - Jun 24 bull cycle
• SUP 3: 1.3812 1.0% 10-dma envelope
• SUP 4: 1.3770 Low May 29 

A fresh short-term cycle low in USDCAD Monday confirmed an extension of the current bear leg and reinforces current bearish conditions. Scope is seen for a deeper retracement of the May 1 - Jun 24 bull leg. Sights are on 1.3817, the 50% retracement point. Note that the 200-dma lies at 1.3849, an important support point. Initial firm resistance to watch is at 1.4005, the 50-day EMA.  

Tuesday's US rates/bond options flow included:

• SFRU6 96.12/96.00ps, traded 2 in 1k
• SFRU6 96.31/96.37/96.43c fly, traded 0.5 in 2.5k
• SFRU6 96.25/96.37/96.50c fly, traded 2 in 1k
• SFRV6 96.3125/96.4375 call spread bought for 0.75 in 10k (block)
• SFRX6/Z6 96.31/96.37cs spread, traded 0.25 in 2k
• SFRZ6 96.25c, traded 6.25 in 4k
• SFRZ6 96.00/95.625 put spread bought for 9.75 in 6k (block)
• SFRZ6 95.9375/95.8125/95.75/95.50 broken put condor bought for 1.25 in 4k (block)
• SFRZ6 95.62p, sold at 3.25 in 10k (sold in 15k total in the Pit and on Screen)
• SFRM7 96.00/96.25cs 1x2 with 95.87/95.62ps 1x2 strip, traded 19.25 for the 2 in 1.5k.
• 0QX6/Z6 95.75/96.00/96.25c fly strip, trades 11 in 1k, 7.5k total (pit/screen).
• 0QZ6 96.00/95.50/95.00p fly, traded 11.75 and 12 synth in 6k
• 0QZ6/3QZ6 96.50 cs, bought the 1yr for 2.75 in 2k.
• 0QH7 96.00/96.37/96.75c fly with 96.12/96.37/96.62c fly strip, bought for 10 in 5k
• TUU6 102.875/103.00/103.125 call tree vs 103-02.375 6% sold at 5 in 6k (block)