US TSYS: Treasuries Reverse Midmorning Knee-Jerk Dive, 10Y Note Sale Tailed

Reserves fell $91B in the latest week to $3.26T, and continue to pull back from the early June high of $3.43T. 

• This came alongside a $47B rise in reverse repo takeup, which in turn looks to be quarter/month-end related. It also came as the Treasury General Account rose $38B.
• With the debt limit having been lifted last week, Treasury is expected to ramp up bill issuance for the next couple of months to rebuild cash reserves.
• A TGA target of $800+B implies net bill issuance north of $400B by end-September.
• Outside of the rise in TGA amid net bill issuance, it should surge in mid-September amid coupon settlements and tax payments, bringing reserves down with it, making that the next true test of reserve "abundance".

• RES 4: 0.6700 76.4% retracement of the Sep 30 ‘24 - Apr 9 bear leg
• RES 3: 0.6688 High Nov 7 ‘24
• RES 2: 0.6603 High Nov 11 ‘24
• RES 1: 0.6590 High Jul 01
• PRICE: 0.6514 @ 16:03 BST Jul 07 
• SUP 1: 0.6486 Low Jul 07
• SUP 2: 0.6471/6373 50-day EMA / Low Jun 23 and a reversal trigger
• SUP 3: 0.6357 Low May 12
• SUP 4: 0.6275 Low Apr 14

The trend set-up in AUDUSD remains bullish and the latest pullback appears corrective - for now. Recent gains maintain the bullish price sequence of higher highs and higher lows, the definition of an uptrend. Note too that moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 0.6603 next, the Nov 11 2024 high. Initial firm support to watch is 0.6471, the 50-day EMA.     

The latest Federal Reserve H.4.1 release showed limited changes in the size of the Fed's assets and liabilities in the week to Wednesday July 2, with a small drop led by Treasury runoff.

• The latest week saw nominal Treasury holdings fall by around $7B, though the value of TIPS holdings rose $2.3B (presumably due to reflect revaluation on inflation compensation). SOMA runoff over the most recent 4-week period was just under $25B, above the longer-run expected average of $20B ($15B MBS, $5B Tsy).
• Discount window borrowing rose just under $0.5B to $6.4B for a fresh post-July 2024 high, though we don't see the rise as consistent with any sort of meaningful banking sector stress. Pandemic 13-3 program takeup fell $0.2B.