Reply To: Bond Traders Weekly Outlook: Treasuries Rally with Flight to Safety Ahead of FOMC


U.S. Treasuries ended a strong week on a higher note, sending yields back toward their lowest levels of the week.

European and U.S. equities faced pressure with banks at the forefront of the weakness. First Republic Bank (FRC 22.68, -11.59, -33.8%) announced a suspension of its dividend and confirmed that it borrowed funds from the Fed’s discount window over the past week, which weighed on sentiment.

The higher start pressured yields on 5s and 10s back below their respective 200-day moving averages while the 2-yr yield also fell past its 200-day moving average when shorter tenors took the lead in midday trade. The 5-yr note and shorter tenors inched to fresh highs in the afternoon while 10s and 30s finished just below their best levels from the late morning. Next week will be headlined by the FOMC decision on Wednesday, and The Wall Street Journal’s Fed insider said during a CNBC appearance that the decision will hinge on financial stability and performance of capital markets over the next few days.

The fed funds futures market, meanwhile, still sees a 65.7% implied likelihood of a 25-bps increase.

This week’s action expanded the 2s10s spread by 47 bps to -42 bps and it sent the MOVE index past its pandemic high to a level not seen since 2008.

Crude oil lost $9.81, or 12.8%, this week, while the U.S. Dollar Index fell 0.6% to 103.81, losing 0.9% for the week.

2-yr: -32 bps to 3.82% (-77 bps for the week)
3-yr: -28 bps to 3.68% (-60 bps for the week)
5-yr: -28 bps to 3.47% (-48 bps for the week)
10-yr: -19 bps to 3.40% (-30 bps for the week)
30-yr: -12 bps to 3.60% (-10 bps for the week)