FED: US TSY 17W AUCTION: NON-COMP BIDS $645 MLN FROM $60.000 BLN TOTAL

• The Fed rate path is pushing higher again having initially fully reversed a spike on unsubstantiated and subsequently refuted headlines around a 90-day pause in tariffs.
• The speculation-driven spike aside, it’s back close at Friday’s close for near-term meetings and a little above for meetings from September onwards.
• Cumulative cuts from an assumed 4.33% effective: 12.5bp for May (vs 16bp at the NY crossover), 35bp Jun (vs 40bp), 57.5bp Jul (vs 66bp) and 99bp Dec (vs 112bp).
• Inter-meeting cut odds still haven’t fully receded though, showing ~2bp of cuts priced in the April FF contract vs closer to 6.5bp of cuts at one point overnight. Today’s regular Board of Governors meeting at 1130ET could be helping that despite being a purely routine event as noted earlier.
• There have been larger reversals of the overnight rally further out the curve: SOFR futures show terminal yields at 3.14% (in the SFRU6) after a ~20bp lift since the NY crossover. It’s now +8.5bp from Friday to limit the slide to ~25bps since Liberation Day tariffs.  

• Stocks are mixed in late morning trade, volatile morning after a momentary gap higher early Monday as markets reacted to unsubstantiated headlines that suggested Pres Trump was considering a 90 day pause in tariffs - stocks surged as wires reposted the false rumor that apparently originated on social media.
• Stocks had opened sharply lower overnight and were gradually scaling back losses before the gap bid, earlier short covering after Japanese Prime Minister Shigeru Ishiba said he would go to the US as soon as possible to pitch a wide-ranging deal with President Donald Trump over tariffs, Bbg reported.
• Currently, the DJIA trades down 65.62 points (-0.17%) at 38,226.63 (36,611.78 low), S&P E-Minis up 27 points (0.53%) at 5,135.75 (4,832.00 low), the Nasdaq up 180.4 points (1.2%) at 15,752.95 (14,784.03 low)
• Health Care and Utilities sectors underperformed in the first half, care providers and pharmaceutical companies weighed on the former: Cardinal Health -3.79%, IDEXX Labs -3.32%, Cigna Group -3.13%, Bristol-Myers Squibb -3.13% and Henry Schein Inc -3.04%.
• Renewable and alternative energy weighed on the Utility sector: Eversource Energy -5.19%, Dominion Energy -4.29%, Edison International -4.26%, Sempra -4.01% and PPL Corp -3.80%.
• On the positive side, Communication Services and Financial sectors outperformed in the first half, interactive media and entertainment share buoyed the former: Meta Platforms +0.66%, Warner Bros Discovery +0.62%, Netflix +0.42% and Alphabet +0.39%.
• Meanwhile, banks and services supported the Financial sector with Apollo Global Management +2.85%, KKR & Co +1.65%, Bank of America +0.41% and JPMorgan Chase +0.37%.

With global markets settling after a volatile ~60 minutes of (erroneous) headline-driven trading, ECB implied rates remain off session lows alongside core EGB yields. The 1y1y ESTR swap rate is nonetheless still on track for its lowest close since December 11, 2024, currently at 1.71%. That’s down from a close of 1.90% at last Wednesday's close (i.e. before the "Liberation Day" announcement), and also well below the 1.83% seen on February 28 (i.e. before the German defence/infrastructure announcement).

• The imposition of US tariffs – alongside the policy uncertainty that has built up over the past few months – is expected to weigh on regional demand and therefore contain inflationary pressures in the near-term.
• Additional disinflationary channels stem from the possible diversion of Chinese goods to the EU in response to US tariffs (note: EU officials are currently considering whether to implement measures to protect EU businesses against such dynamics) and a weaker energy price outlook on the back of lower global demand and an unwinding of OPEC+ supply cuts.
• 1- and 2-year EUR inflation swaps are on track to close at their lowest since mid-2021, even as Brent crude and natural gas futures drift away from early lows through the course of today’s session.
• However, on a 3-5-year horizon, the ESTR forward curve still sits steeper than at the end of February. This likely reflects the positive growth and inflation impulse from increased German/EU fiscal spending, possibly alongside the medium-term inflationary impact of tariffs assuming the EU retaliates.