US TSYS: Repo Reference Rates

Underscoring the bounce in 2s10s off earlier lows:

• +10,000 TUM2 105-10.12 post-time offer at 1606:05ET vs.
• -5,450 TYM2 118-30, sell through 118-31.5 post-time bid

Rates trade modestly higher after the bell, recovering a portion of Thursday's sell-off. Bonds see-sawed +/- a few ticks around steady in early trade before making session highs around 1000ET, 30YY slipped to 2.8850% before climbing and holding a range from noon on around 2.9470%.

• Short end rates were under pressure for much of the session recovered slightly after the bell as Cleveland Fed Mester pushed back on any need for 75bps hike at May 4 FOMC, in favor of 50bp moves.
• Curves bounced off flatter levels: After tapping 42.0 ahead Mon's open, 2s10s fell to 14.108 low in the first half as markets price in the off chance of 75bp hike at the May 4 FOMC. Bbg noted Fed Swaps priced in 250bp in hikes by year end.
• Nomura analysts anticipate the Fed to make two consecutive 75bp hikes (June and July) after a 50bp hike on May 4:
• "For some time, our view has been that if the Fed could hike 200bp at one meeting without significantly affecting market functioning, they would. So far, markets have been reluctant to price 75bp hikes, but stronger pricing for such a move would likely ease the path for the FOMC and participants could likely forge a consensus on such action quickly".
• Fed enters Policy blackout at midnight tonight.

Gyrations in underlying FI futures Friday spurred buyers of wing insurance (low delta calls and puts), challenging environment for active traders. Bonds see-sawed around steady before rallying around midmorning, curves flattening with short end rates underperforming all session.

• Bonds trimmed gains by noon, holding to a narrow range while the short end pared losses after Cleveland Fed President Mester pushed back on any need to hike 75 bp at the May 4 FOMC in an interview on CNBC after the close. Note, lead quarterly Eurodollar futures EDM2 traded 98.11 (-0.065) after the bell vs. 98.050 session low.
• Salient Eurodollar trade included a buy of 5,000 Sep 97.75/98.00/98.25/98.50 call condors after block buy +10,000 Sep 96.00 puts, 7.0 ref 97.275.
• Treasury options saw decent 5Y volumes with 12,000 FVM 113/114 1x2 call spds at 5.5 and over 22,000 FVM 114 calls, 12.5-13. Early Blocks: total 25,000 FVM 111.5 puts, 34.5 vs. 15,000 FVM 112.5 puts, 62.