US 10YR FUTURE TECHS: (U5) Bear Cycle Remains In Play

• RES 4: 113-04   76.4% retracement of the Apr 7 - 11 bear leg 
• RES 3: 112-12   61.8% retracement of the Apr 7 - 11 bear leg
• RES 2: 111-25   50.0% retracement of the Apr 7 - 11 bear leg   
• RES 1: 111-24   High Apr 28
• PRICE:‌‌ 111-23+ @ 16:57 BST Apr 28 
• SUP 1: 110-16+/109-08 Low Apr 22 / 11 and the bear trigger 
• SUP 2: 108-26+ 76.4% retracement of the Jan 13 - Apr 7 bull cycle
• SUP 3: 108-21   Low Feb 19
• SUP 4: 108-03+ Low Dec 12 ‘24 and a key support 

Treasury futures are trading closer to their recent highs. Recent gains are considered corrective and resistance to watch is 111-25, 50.0% of the Apr 7 - 11 bear leg sell-off. Clearance of this level would undermine the bearish theme, and open 112.12, the 61.8% retracement point. On the downside, a resumption of weakness would refocus attention on 109-08, the Apr 11 low and the bear trigger. Clearance of this level would resume the downtrend.  

Some sell-side expectations for today's financing estimates are below, from lowest-to-highest marketable borrowing requirement for the current quarter (where stated) - as we note, these expectations are somewhat wide in part due to differing TGA assumptions:

• TD Securities: End-June TGA cash estimate lowered to $650B (from $850B), borrowing estimate ~$300B.
• Wrightson ICAP: $480B market borrowing Apr-Jun, $570 Jul-Sep ($850B end-quarter TGA assumed).
• Deutsche: $507B borrowing requirement in current quarter, $480B next quarter. Cash targets unchanged at $850B.
• Goldman Sachs: $750B borrowing requirement in current quarter assuming $850B TGA; $875B next quarter (also $850B TGA).
• UBS: “don’t expect any change, but it is possible that they might lower their standard cash target from $800-850bn to as low as $500bn”.
• Wells Fargo: Assumes $850B quarter-end TGAs.

Indeed we've seen some expectations that Treasury could simply lower its end of quarter cash targets today, which would significantly reduce borrowing requirement estimates vs what we have penciled in. Additionally as we note below, borrowing requirement estimates are extremely wide outright.

• There has long been speculation that Treasury could lower its targeted cash levels (its current policy is that the cash on hand should be able to cover five days of net Treasury outflows, which would be closer to $500B than the current $850B level).
• If the TGA targets are lowered in this Refunding, it wouldn't likely mean Treasury will plan for lower coupon auction issuance in the near future, as cash raising continues to be conducted primarily by bills. That said, it could on the margins reduce potential for higher coupon sizes in the medium-term, and a structural shift lower in cash balances could be interesting otherwise for multiple reasons.
• In the near-term, it would mean less volatility in reserves later this year when the debt limit is (presumably) lifted, since Treasury wouldn't have to ramp up bill issuance to rebuild the TGA to the same degree.
• One bigger picture implication of lowering the TGA structurally would be that Fed QT could run for longer, allowing for a smaller Fed balance sheet at the end of the runoff process - something t. This is because all else being equal, a lower TGA level means higher reserves in the banking system. A $200B drop in the TGA requirements to $650B for example could roughly speaking imply the Fed could shrink its balance sheet by that additional amount which would take around 10 more months (QT is running at $20B/monthly).