US TSYS: Holding Reversal Of US-Iran Escalation Induced Losses
Treasuries are mildly firmer, currently broadly consolidating yesterday’s rally on lower crude oil futures although with 5s through to 30s extending those gains earlier in the overnight session. The US says Iran talks are to continue despite Hormuz strikes. Today’s particularly light calendar sees added attention on the Fed’s Monetary Policy Report which should be published today ahead of Fed Chair Warsh’s congressional testimonies next week. US CPI on Tuesday also starts to loom large.
- Cash yields are 1-1.8bp lower with the front end slightly lagging declines.
- TYU6 trades at 109-09+ (+01) on light cumulative volumes of 240k.
- It’s earlier high of 109-12 saw a full reversal of losses seen since Tuesday’s revocation of waiver of Iranian oil supply – see our STIR comment for a comparison here with stickier European rates where energy sensitivity remains higher.
- Resistance is seen at 109-25+ (Jul 2 & 6 high) but a bear cycle is still in play despite a bounce. Latest support is seen at 108-25 (Jun 8 low) after touching 108-25+ on Wednesday following clearance of a previous notable support level.
- Fed: Monetary Policy Report (potentially 1100ET)
- Politics: Trump in Swearing-In Ceremony for Special Envoy for American Landowners (1500ET)
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US TSYS: Earlier Modest Losses Pared, US CPI and 10Y Supply Ahead
Treasuries have pared earlier losses but are still slightly lower on the day for cash (unchanged for TYU6) after a latest exchange of fire between the US and Iran. Both sides indicated that recent strikes were retaliatory in nature, suggesting limited appetite to re-escalate into a full-blown conflict once again. It sees only a limited paring of yesterday’s gains as tech stocks slipped. Today’s docket is headlined by the US CPI report for May although we also see 10 supply after last month’s offering saw a fourth consecutive tail.
- Cash yields are 0.5-1bp higher on the day.
- The 5.05% level for 30Y yields continues to offer some resistance after yesterday’s high of 5.0476%, with it currently at 5.011%.
- TYU6 trades at 109-07+ (00+) on light cumulative volumes of 255k.
- It remains above Monday’s low of 108-25 (initial support) but a bear threat remains present with the trigger at 108-08+ (May 19 low). To the upside, resistance is seen at 109-17 (20-day EMA) before 110-00+ (May 29 high).
- Data: Weekly MBA (0700ET), CPI May (0830ET), Federal budget balance May (1400ET)
- Coupon issuance: US Tsy $39B 10Y Note auction re-open - 91282CQQ7 (1300ET)
- Bill issuance: US Tsy $69B 17W bill auction (1130ET)
- Politics: Trump signs The Secure America Act (1000ET, press pool) before closed press events at 1600ET and 1700ET
SEK: First Net Inflow Into US Equity Funds In 17 Months In May
- Swedish Investment Fund Association members reported a first net inflow into North American (assumed mostly US) equity funds in 17 months in May. Although small, the SEK1.2bln inflow could reflect investors chasing the strong recovery in US tech names since the end of March.
- Alongside this, there was a SEK2.7bln net outflow from domestic equity funds and a SEK9.8bln net inflow into global equity funds.
- A stalling or reversal of net flows into domestic equity funds in the coming months could weigh on SEK performance.
- With progress towards a durable US-Iran ceasefire agreement having halted in recent days and the krona's low carry presenting an ongoing headwind, scope for material SEK recoveries could be limited.
- Ahead of next Wednesday’s Riksbank decision, we will receive updates on the labour market and details of the May inflation report. Upside inflation risks could prompt the Board to revise its policy rate path a little higher relative to March, but domestic economic conditions limit the urgency of any rate hikes.
- USDSEK is up 0.25% today at 9.4910. The short-term technical setup is bullish, with key resistance the March 31 high at 9.5862. Of course, the US CPI report presents the main near-term risk for the pair.
US 10YR FUTURE TECHS: (U6) Bearish Trend Structure
- RES 4: 111-02+ High Apr 24
- RES 3: 110-28+ High May 7
- RES 2: 110-03 50-day EMA
- RES 1: 109-17/110-00+ 20-day EMA / High May 29
- PRICE: 109-06+ @ 11:23 BST Jun 10
- SUP 1: 108-25 Low Jun 08
- SUP 2: 108-08+ Low May 19 and the bear trigger
- SUP 3: 108-04 1.382 proj of Apr 17 - May 4 - 7 swing
- SUP 4: 107-29 1.618 proj of the Apr 17 - May 4 - 7 price swing
Treasuries remain above Monday’s low, however, a bear threat remains present. Recent weakness reinforces a M/T bearish theme and provides an early signal that the corrective cycle since May 19, is over. Resistance to watch is 110-03, the 50-day EMA. Clearance of the average would undermine the bear theme. The bear trigger lies at 108-08+, the May 19 low. A breach of this level would confirm a resumption of the downtrend.
