US TSYS: Ylds Lower, Curves Bull Fatten Ahead Wed's Nov FOMC Minutes
Tsys stronger, near late session highs after the bell, yield curves bull-flattening to new all-time lows (2s10s -76.451), 30YY slip to 3.8153% low.
- KC Fed President Esther George Tuesday said the large savings buffer Americans possess is likely to require higher interest rates to keep a lid on consumer spending.
- "High savings is likely to provide momentum to consumption and require higher interest rates," she said in remarks at a conference held by the Central Bank of Chile, estimating Americans continue to hold on to USD2.3 trillion in excess savings relative to pre-pandemic levels.
- Heavy overall volumes, TYZ2 appr 3M - tied to Dec/Mar rolling ahead Wed, Nov 30 first notice (Mar24 takes lead), over 1.9M TYZ/TYH spds trade after the close makes appr 1.1M not roll-tied, average volumes.
- Tsys pare gains after $35B 7Y note auction (91282CFY2) tail: 3.890% high yield vs. 3.862% WI; 2.33x bid-to-cover vs. 2.43x last month.
- Reminder: Weekly jobless claim rolled to Wednesday due to Thursday's Thanksgiving Holiday mkt close (followed by early noon close Fri, Globex at 1215ET, NYSE and Nasdaq at 1300ET). Note on Tsy bill auctions: competitive closing time for 4- and 8W bills earlier than the usual 1130ET to 1000ET, followed by 17W bill auction at 1130ET.
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GBP: GBP Higher Early Asia Pac Trading, As Johnson Pulls Out Of Leadership Race
GBP/USD is higher in early Asia Pac trading. The pair is just shy of the 1.1400 level currently. This is around +0.85% on closing levels from the end of last week (the pair finished up just above 1.1300 in NY at the Friday close). The move followed headlines that Boris Johnson was pulling out of the leadership race to be the next UK Prime Minister. He failed to achieve the public backing of at least 100 MPs.
- This leaves ex-Treasury Rishi Sunak as the clear front runner to be the next Prime Minister. However, Penny Mordaunt is reportedly staying in the leadership race, although is well behind Sunak at this stage, with the FT stating she has less than 30 MPs backing her at this stage (see this link for more details). See this piece from The Guardian as well.
USDCAD TECHS: Finds Support At The 20-Day EMA
- RES 4: 1.4040 76.4% retracement of the 2020 - 2021 bear cycle
- RES 3: 1.4016 3.382 proj of the Aug 25 - Sep 7 - 13 price swing
- RES 2: 1.4000 Psychological round number
- RES 1: 1.3898/3977 High Oct 14 / 13 and the bull trigger
- PRICE: 1.3721 @ 16:29 BST Oct 21
- SUP 1: 1.3670 20-day EMA
- SUP 2: 1.3503 Low Oct 4 and a key support
- SUP 3: 1.3429 50-day EMA
- SUP 4: 1.3358 Low Sep 21
USDCAD traded briefly below the 20-day EMA Thursday. This average, at 13670, is an important S/T support. The uptrend remains intact and the latest pullback is considered corrective. The recovery from 1.3503, Oct 10 high, reinforces bullish conditions. MA studies still highlight an uptrend and 1.3838, Sep 30 high has been cleared. Should markets close below the 20-day EMA, a deeper correction toward 1.3503, Oct 4 low, would be on the cards.
US TSYS: Market Roundup: Dec 75Bp Hike Pricing Fades, Risk-On Cues
Tsys trade mixed after the close, yield curves broadly steeper as 2s through 10s finished broadly higher vs. continued weakness in long end 30Y bonds Friday.
Just minutes after yield hit new cycle highs (10YY 4.3354%) - yields reversed course (10YY 4.2188%) as short end surged following tweet from WSJ's Nick Timiaros:
- Some officials are more eager to calibrate their rate setting to reduce the risk of overtightening. But they won’t want to dramatically loosen financial conditions if and when they hike by 50 bps (instead of 75). This meeting could allow officials to get aligned on next steps."
- Some fast$/prop accts attempted to fade the move prior to a Large 2s30s steepener Block at 0935:14ET:(+11,470 TUZ2 102-62, through 102-01.75 post-time offer vs. -3,000 USZ2 118-19, through 118-22 post-time bid).
- Risk-on tail wind after San Francisco Federal Reserve President Mary Daly said Friday the FOMC needs to start considering a slowing the pace of interest rate hikes in order to avoid tightening monetary policy too much, adding the benchmark lending rate could reach 4.5% to 5% next year.
- “We don’t just keep going up in 75 basis point increments, we do a stepdown," she said. “That doesn’t mean step down as in pause and don’t raise, it means step down to increments that are easier to manage, 50, 25, where you’re still moving up but you’re doing it in a way that is not so aggressive.”
- After the bell, 2s10s curve was +12.828 at -25.775 vs. -38.595 inverted low.
