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U.S. assets have come under pressure since yesterday’s European close, with the USD, equities and Tsys selling off.

• 10-year Tsy yields have moved away from session highs but are still up 6bps on the session at 4.36%. 30-year yields briefly marked above 5.00% for the first time since early January (and before that, October ‘23), but have since fallen back to 4.84%.
• Lurches higher in the VIX and MOVE indices will have prompted deleveraging, while a potential continued unwind of basis trade positions remains in focus for the bond market.
• A weak 3-year auction added pressure yesterday evening, while the confirmation of the U.S. reciprocal tariffs overnight (including a 104% levy on Chinese imports) has kept risk on the defensive.
• Although indirect take-up for the 3-year supply was broadly in line with recent auctions at 66.94%, it still raises questions around broader Tsy demand. Today’s 10-year and tomorrow's 30-year auctions will come under even greater scrutiny as a result.
• Swap spreads (vs. SOFR) have moved to fresh all-time lows, potentially indicative of funding/liquidity pressures. On that front, Wrightson ICAP have noted that “funding markets were tighter than we expected yesterday”.
• Alongside basis trade unwinds, some have suggested that the fall in swap spreads represents concerns that that domestic banks will have to shoulder the load of financing the federal deficit if foreign Tsy demand wanes.
• Already crimped financial intermediary capabilities also offer part of the explanation for the swap spread sell off and basis trade pressure.
• Speculation surrounding the potential imposition of a new taxation structure for foreign Tsy holdings may also be feeding into higher yields.

Figure 1: US 3/10/30-year Swap Spreads

• RES 4: 1.4452/4543 High Mar 13 / 4 and a bull trigger
• RES 3: 1.4415 High Apr 1 
• RES 2: 1.4301 50-day EMA 
• RES 1: 1.4274 Intraday high 
• PRICE: 1.4205 @ 08:07 BST Apr 9
• SUP 1: 1.4028 Low Apr 3 and the bear trigger 
• SUP 2: 1.3986 Low Dec 2 ‘24  
• SUP 3: 1.3944 61.8% retracement of Sep 25 ‘24 - Feb 3 bull run
• SUP 4: 1.3894 Low Nov 11 ‘24 

USDCAD has recovered from last week’s low. For now, the move higher appears corrective. The sell-off last week confirmed a resumption of the medium-term bear cycle that started Feb 3. Price has traded through a key support at 1.4151, the Feb 14 low, and this signals scope for an extension towards 1.3944, a Fibonacci retracement. On the upside, key short-term resistance is seen at 1.4301, the 50-day EMA.

• RES 4: 0.6409 High Dec 9 and a key resistance 
• RES 3: 0.6389 High Apr 3               
• RES 2: 0.6270 50-day EMA 
• RES 1: 0.6127/0.6187 High Apr 7 / Low Mar 4   
• PRICE: 0.5996 @ 08:05 BST Apr 9 
• SUP 1: 0.5915 Intraday low 
• SUP 2: 0.5900 Round number support 
• SUP 3: 0.5830 2.000 proj of the Sep 30 - Nov 6 - 7 price swing
• SUP 4: 0.5729 2.236 proj of the Sep 30 - Nov 6 - 7 price swing

AUDUSD maintains a bearish tone following the latest steep sell-off. The move down confirms a resumption of the downtrend that started late September last year. A key support at 0.6088, the Feb 3 low, has been broken. This paves the way for an extension towards the 0.5900 handle next. On the upside, resistance to watch is at 0.6187, the Mar 4 low. The trend is oversold, a recovery would allow this set-up to unwind.