Reply To: Traders Market Weekly: Inflation Obsession in Worsening Liquidity


Bond Wrap:

U.S. Treasuries mostly bullish bias. The 2-yr note yield hit 4.22% in the overnight futures trade and the 10-yr note yield kissed 3.80%, yet they showed some marked improvement into the cash open, catalyzed by the news that the UK government will be scrapping the part of its fiscal stimulus plan that calls for a tax cut for high earners, and some financial stability concerns stemming from an escalation in credit default swap prices for Credit Suisse.

The British pound rallied nicely (GBP/USD +1.3% to 1.1301) on the UK news.

The Treasury market’s recovery effort picked up some steam following the release of the weaker-than-expected ISM Manufacturing Index for September and Construction Spending Report for August.

There was a narrative that the markets were helped today by a view that these developments could spur the Fed to take a less aggressive path with its rate-hike campaign. That view wasn’t necessarily corroborated by the fed funds futures market; nonetheless, it created a trading spark on the first day of October that followed a very bad September for the Treasury market.

Yields faded away from their best levels as the cash session progressed, but not enough to undo a winning session.

2-yr: -9 bps to 4.11%
3-yr: -11 bps to 4.10%
5-yr: -14 bps to 3.89%
10-yr: -14 bps to 3.65%
30-yr: -5 bps to 3.71%