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

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    U.S. Treasuries have ticked down from their early highs, but they continue hanging onto big gains with the 2-yr note continuing its massive surge from last week.

    Thanks to today’s extension of recent gains, the 2-yr yield is now down 100 basis points since Tuesday while the 10-yr yield is down 47 basis points in that timeframe.

    Today’s opening spike briefly sent the 10-yr yield past its 200-day moving average (3.467%) to a level not seen since the start of February while some recent backtracking lifted the 10-yr yield back above that mark.

    Equities started the day in the red, but thy have recovered their early losses with the S&P 500 (+0.1%) hovering just above its flat line.

    2-yr: -53 bps to 4.06%
    3-yr: -41 bps to 3.87%
    5-yr: -32 bps to 3.64%
    10-yr: -20 bps to 3.50%
    30-yr: -9 bps to 3.61%


    Pre market Recap:

    U.S. Treasuries are on track for an opening surge with shorter tenors set to pace the early strength. Concerns about the health of regional banks continued swirling about with names like First Republic Bank (FRC 28.00, -53.76, -65.8%) and PacWest Bancorp (PACW 8.00, -4.35, -35.2%) seeing sharp pre-market losses.

    Signature Bank has been seized by regulators, representing the third largest bank failure in the history of the United States.

    The Federal Reserve announced an Emergency Bank Term Funding Loan Program while the British government is working on a rescue plan to guarantee loans to companies with money locked up in accounts at Silicon Valley Bank.

    French Finance Minister Le Maire said that he is not seeing specific risks of contagion and that banks in France have ample liquidity.

    Goldman Sachs no longer expects the Fed to announce a rate hike at the conclusion of the March meeting.


    No surprise here but Credit Suisse CDS +63bps to 480 on the day.
    Surprised not higher earlier …
    Which European bank will be sacrificed?


    Watch Bonds P&D Always:

    Yield on two-year Treasury note topped 5% for the first time since 2007 just last week.
    It traded 4.126%, on track for its biggest one-day decline since 2001.
    Yield fallen faster than in any three-session stretch since 1987

    The yield on the 10-year Treasury note—a key borrowing benchmark that reflects investors’ longer-term outlook for economic growth, inflation and interest rates—fell to 3.53% from 3.694% Friday.

    Investors and economists closely watch Treasury yields because they set a floor on interest rates across the economy and serve as a benchmark against which other financial assets are valued.

    The Fed’s rapid rate increases sent yields surging last year, sparking stock declines and helping send the average 30-year mortgage rate as high as 7%.

    Federal-funds futures, which traders use to bet on interest-rate moves, showed Monday morning a 64% chance that the Fed would still raise rates by 0.25 percentage point at its meeting next week, and a 36% chance that it wouldn’t move at all, according to CME Group data.


    U.S. Treasuries off their worst levels but they deep in red with 2-yr at the forefront of the selling after outperforming over past two days.

    – Renewed pressure on 2s10s spread, now -74 bps after ending yesterday’s session at -50 bps


    2-yr: +34 bps to 4.36%
    3-yr: +31 bps to 4.15%
    5-yr: +17 bps to 3.84%
    10-yr: +11 bps to 3.62%
    30-yr: +6 bps to 3.72%


    U.S. Treasuries ended Thursday with losses across the curve after retreating from their early highs.

    The trading day started with solid gains in longer tenors while the short end underperformed after leading yesterday’s rally. The market climbed after the overnight session featured news of assistance for Credit Suisse and a rate hike from the European Central Bank. Credit Suisse will borrow up to CHF50 bln from the Swiss National Bank to improve liquidity while the European Central Bank went ahead with its 50-bps rate hike due to a fear that foregoing this increase would spark a panic among investors.

    Treasuries added to their early gains even though the market received mostly better than expected data, but they reversed shortly after the 10-yr note and the long bond inched above yesterday’s highs.

    The entire complex slid from highs in the late morning, assisted by news indicating that First Republic Bank will receive about $30 bln in deposits from big Wall Street banks. The market continued backtracking into the early afternoon with all tenors finishing near lows.

    2-yr: +19 bps to 4.14%
    3-yr: +13 bps to 3.96%
    5-yr: +16 bps to 3.74%
    10-yr: +9 bps to 3.59%
    30-yr: +3 bps to 3.71%


    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)


    U.S. Treasuries continued in the same vein as the previous week with safe haven flows from the continued fallout from the banking crisis. An intense s
    [See the full post at: Bond Traders Weekly Outlook: Treasuries Rally with Flight to Safety Ahead of FOMC]

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