Reply To: Bond Traders Weekly Outlook: Safe Haven Flows Impacted by Bank CDS


U.S. Treasuries lows after backpedaling from their initial highs.

Treasuries began dipping immediately after the cash open after a night that saw strength from Treasury futures. Shorter tenors led the overnight advance, but they have also been at the forefront of the recent reversal from opening levels.

The bond market continued climbing through the night, rallying to highs once the focus turned to action in Europe, where UBS agreed to acquire Credit Suisse for $3.23 bln in a deal brokered by Swiss authorities and regulators. Risky bank debt has been pressured in response to news that Credit Suisse will write down CHF16 bln worth of its Additional Tier 1 debt. The Swiss National Bank doubled the credit line to Credit Suisse to CHF100 bln and it is also taking part in coordinated action to improve dollar liquidity through swap lines along with the Fed, Bank of England, Bank of Canada, and Bank of Japan.

There has been continued volatility in rate hike expectations with Goldman Sachs calling for a pause on Wednesday while JPMorgan expects a 25-bps increase. Similarly, the fed funds futures market continues pricing in a 61.3% implied likelihood of a 25-bps hike.

The early pullback has lifted the 30-yr yield above its opening level from Friday while yields on shorter tenors remain below their opening levels from the Friday session. Equities are off to a mixed start with the S&P 500 (+0.4%) holding a modest gain while the Nasdaq (-0.3%) lags.

2-yr: +12 bps to 3.94%
3-yr: +11 bps to 3.79%
5-yr: +9 bps to 3.56%
10-yr: +8 bps to 3.47%
30-yr: +6 bps to 3.66%