US TSYS: No Cash Trading Today

TYM5 is trading 110-07+, up 0-03 from its close. 

• The US 2-year yield opens around 3.98%, unchanged from its close.
• The US 10-year yield opens around 4.453%, up 0.01 from its close
• (Bloomberg) -- “House Speaker Mike Johnson said “we are almost there” on passing a sweeping US tax bill. Republicans are pushing to implement Medicaid work requirements in 2027, two years earlier than planned, Majority Leader Steve Scalise told CNBC.”
• (Bloomberg) - “Washington lawmakers are risking a "fiscal disaster" if a recession hits as they continue with their package of sweeping tax cuts, according to Guggenheim Securities Co-Chair Jim Millstein.”
• “The cost estimates of the current GOP package "assume consistent economic growth", but a recession could expand the deficit from $2.4 trillion to $4 trillion.”
• "*FREEDOM CAUCUS CHAIR HARRIS SAYS VOTES NOT THERE FOR TRUMP BILL" - BBG
  "*HARRIS PREDICTS DEAL ON TRUNP TAX BILL DELAYED UNTIL JUNE".
• The 10-year Yield failed once again to hold above 4.5% likewise the 30-year Yield above the pivotal 5% level. A sustained break above this level could see another round of selling targeting the 4.75% area. Support seen back towards 4.35/40%, dips back towards here should see supply emerge once more.
• Data/Events: Tuesday's schedule includes the Philly Fed nonmanufacturing survey along with another slew of Fed speakers, including Collins, Barkin, Musalem, Kugler, Hammack and Daly.

The ESM5 Overnight range was 5892.75 - 5987.50, Asia is currently trading around 5985. This morning risk is opening up well supported as the dip on the downgrade was quickly erased overnight.

• Bloomberg - “Moody's Ratings cut its ratings for deposits at some of the biggest banks, including Bank of America Corp. and JPMorgan Chase & Co., citing Friday's downgrade of the US.”
• “The downgrade affects companies, investors, and consumers that lend money to banks through deposits, derivatives trades, or unsecured bonds, as the US government's implicit support for these obligations is reduced.”
• “Jamie Dimon told JPMorgan investors he’s wary of the global financial and political outlook, with credit “a bad risk” and odds of inflation greater than people assume.”(BBG)
• The price action last week showed how underweight investors had been and in the short-term you would expect dips to continue to be supported, first support seen back towards the 5700 area.
• The price action overnight was a good illustration of this as portfolios caught underweight used the dip yesterday to increase their holdings.
• Even though it is starting to look overdone, this move looks like it could still have more to go as the conviction of the bears is challenged. 

• Look for sellers to return back towards the highs again as the concerns regarding Global growth and the re-allocation out of US Assets have not gone away.

  Fig 1: SPX Daily Chart

  

  Source: MNI - Market News/Bloomberg

ACGBs (YM +2.0 & XM +5.5) are stronger after US tsys erased early losses and closed in the green. Jitters over Moody's downgrade on Friday rekindled fears of another "Sell America" trade. But the downgrade concerns abated since it was a long time coming and not surprising.

• 30Y yields notably touched their highest since Nov 1 2023 (5.0353%) - up 13.5bp from Friday's ratings downgrade announcement - before an impressive reversal lower on the day (just 1+bp up from pre-downgrade).
• Today, the local calendar will see the RBA Policy Decision, with a 25bp rate cut to 3.85% widely expected (31/33 analysts on Bloomberg are forecasting -25bp with two expecting -50bp). This comes after Q1 trimmed mean CPI fell within the 2-3% target band, with activity, especially consumption, remaining lacklustre. 
• After stronger-than-expected Q1 wages and April employment data, the central bank is likely to retain its cautious tone though regarding the data-dependence of future easing and reiterate that uncertainty is very high. (See MNI RBA Preview here)
• Cash ACGBs are 2-5bps richer with the AU-US 10-year yield differential at +2bps.
• The bills strip is little changed.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut today is given a 96% probability, with a cumulative 76bps of easing priced by year-end.