US TSYS: Tsys Yields Continue To Trend Lower On Strong Data
Mar-02 22:57
- Tsys gained Friday led by front-end yields as Fed swaps priced in additional easing this year beginning as soon as June vs July previously. The curve remained notably steeper on the day, holding a move that gathered pace during US morning. TU closed +05¼ 103-15+, while TY closed +14+ at 111-03
- In tsys options flows, upside protection targeting sub-4% 10yr yield continued, with notable flows including a $3m week 2 play targeting 3.85% and demand for similar hedges in April 10yr options
- Cash tsys yields closed 6.5bps to 4bps lower, short -end outperforming. The 2yr closed -6.2bps at 3.989%, while the 10yr closed -5.2bps at 4.115%. The 2s10s closed +1bps at 21.5bps, while the 2s30s closed +2bps at 49.55, after rising 4bps on Thursday.
- Friday saw Core PCE ease to 2.647% Y/Y from an upward revised 2.865% Y/Y (initial 2.794%) in Dec, as it starts to be helped by more favorable base effects. The Atlanta Fed’s GDPNow for Q1 has been slashed to -1.5% from 2.3% annualized in the Feb 19. Meanwhile, Chicago PMI, increased 6.0pts to 45.5 in February. This is the second consecutive monthly gain, taking the reading to the highest level since June 2024, though it remains in contractionary territory for the fifteenth consecutive month.
- CFTC data for the week ending February 25, show hedge funds aggressively covering their net duration shorts for the third consecutive week, reducing short positions by approximately 188,000 10yr note equivalents across the futures strip. The most significant short covering occurred in ultra-long bond futures ($7.5m/DV01), followed by 2yr note futures ($4m/DV01) and 10yr note futures ($3.3m/DV01). Conversely, asset managers continued to unwind their net long positions, shedding about 117,000 10yr note futures equivalents. Their largest long liquidation was in ultra 10yr note futures ($4m/DV01), with additional unwinding of $6m/DV01 in combined 2yr and 5yr note futures.
- Fed swaps priced in about 25bp of easing by the June FOMC meeting vs 21bp at Thursday’s close, and around 8bp for May vs 7bp previously
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FED: Powell To Deliver Semi-Annual Testimony In Mid-Feb
Jan-31 21:48
The House Financial Services Committee's website confirms that Fed Chair Powell will deliver his semi-annual Monetary Policy Report on Wednesday Feb 12 at 1000ET.
- The Semi-annual testimony will be closely eyed as Powell's first scheduled appearance since the January FOMC - and the House testimony on the 12th is the same day as the release of January CPI (and the week after nonfarm payrolls and benchmark revisions) so will be of particular interest.
US OUTLOOK/OPINION: Nonfarm Payrolls, Revisions Highlight Next Week In US Macro
Jan-31 21:39
Friday’s nonfarm payrolls for January highlights the US macro week. It's a highly anticipated report that could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- The preliminary estimate for the benchmark revision pointed to the level of payrolls being some 818k lower than currently reported for back in March 2024. There’s a broad expectation from what we can gather that the hit seen next week won’t be as large but it could still be significant. We also watch the seasonal revisions closely, as whilst they should have a zero-sum impact over the calendar year, we’ve noted some particularly favorable seasonal factors in recent months that have biased seasonally adjusted jobs growth higher.
- With these considerations in mind, the early days of the Bloomberg consensus points to nonfarm payrolls growth of 150k after a solid three-month average of 170k. Note that the unemployment rate from the separate household survey won’t be affected by these revisions, having already seen its own seasonal factor revisions last month. A population control will complicate month-on-month changes in the levels of employment and unemployment but shouldn’t be significant for the rate, which is seen unchanged at 4.1% having surprised lower with 4.09% in December. The recent high is technically 4.23% in November having first popped to 4.22% back in July.
- Two other special mentions for the week are: 1) rare remarks from FOMC Vice Chair Jefferson speaking on the economic outlook and monetary policy late on Tuesday with both text and Q&A, having last spoke on Oct 9. 2) ISM services on Wednesday after its priced paid series jumped 5.9pts to 64.4 in December for the highest since Feb 2023.
- Away from macro but still material, the coming week brings the US Treasury's quarterly refunding process - our preview is here.
MACRO ANALYSIS: MNI US Macro Weekly: Uncertainty Vindicates Fed’s Patience
Jan-31 21:37
In a largely positive week for economic activity data, including in core durable goods and MNI Chicago PMI, the Q4 GDP accounts stood out by showing a very strong end to 2024 for the consumer.
- As we go to press, though, President Trump has confirmed that tariffs would be imposed on Canada, Mexico, and China beginning this weekend – while also threatening further action against the likes of the European Union and across various import categories.
- The combination of solid growth and policy uncertainty, along with stubborn “supercore” PCE inflation for December, seemingly vindicated the Federal Reserve’s “hawkish hold” at its January meeting.
- A March rate cut is still a possibility but the bar for such an outcome has been set high.
- That gets us to the first key release between now and then: Friday’s nonfarm payrolls for January is the highlight of the US macro week, and could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- Other highlights in the upcoming week include ISM Services and the Treasury’s quarterly Refunding announcement (Wednesday), while FOMC Vice Chair Jefferson delivers commentary on the economic outlook and monetary policy Tuesday.
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