Bond Traders Weekly Outlook: Two Year Note Compresses 2s10s Spread Further

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    Early Bonds: U.S. Treasuries early selling lifted 10-yr yield back toward its 50dma (3.522%), 30-yr yield just 2bps below May high (3.855%)

    In Europe, the EU Commission’s spring forecast raised the eurozone’s 2023 growth outlook to 1.1% from 0.9% while the outlook for 2024 was increased to 1.6% from 1.5%. The inflation outlook was raised to 5.8% from 5.6% for 2023 while the forecast for 2024 was increased to 2.8% from 2.5%.

    Domestically, bank deposits decreased by $17 bln during the first week of May.
    President Biden is expected to hold another meeting with Congressional leaders about the debt ceiling tomorrow.

    Crude oil is rising off a ten-day low while the U.S. Dollar Index is down 0.2% at 102.50.

    An ugly New York Fed Empire State Manufacturing Survey for May tamped down some of the stronger enthusiasm seen earlier. The ugliness came in the headline print of -31.8 (consensus -1.8) versus 10.8 in April. The dividing line between expansion and contraction for this survey is 0.0.

    The key takeaway from the survey is that the new orders index sank 53 points to -28.0, underscoring a sharp drop off in demand in May.

    2-yr +2 bps to 4.00%
    3-yr UNCH at 3.67%
    5-yr +2 bps to 3.47%
    10-yr +4 bps to 3.50%
    30-yr +6 bps to 3.84%


    Bonds weaker after Industrial production and retail sales:

    Total industrial production increased 0.5% month-over-month in April (consensus 0.0%) following a downwardly revised 0.0% (from 0.4%) in March.
    Total retail sales increased 0.4% month-over-month in April (consensus +0.7%) following an upwardly revised 0.7% decline (from -1.0%) in March.

    U.S. Treasuries were on track for a higher start after a couple days of losses in most tenors ahead of that data.

    The overnight session saw the release of weaker than expected April growth figures from China while Germany’s ZEW Economic Sentiment Survey missed expectations with economists noting that Germany could still slip into a recession.

    Later in the day, President Biden will hold another debt ceiling meeting with Congressional leaders at 15:00 ET.

    Crude oil was little changed while the U.S. Dollar Index is down 0.1% at 102.29 ahead of data

    2-yr: +3 bps to 4.03%
    3-yr: +2 bps to 3.69%
    5-yr: +2 bps to 3.49%
    10-yr: +3 bps to 3.54%
    30-yr: +4 bps to 3.88%


    Early Bonds: U.S. Treasuries modestly higher start in longer tenors while the short end is expected to begin closer to unchanged.

    Last night’s debt ceiling meeting was described as positive, but it did not yield any immediate results. Staff level talks are expected to continue in the coming days and President Biden will shorten his trip to the G7 summit in Hiroshima to have more time for negotiations with Congressional leaders.

    U.S. Treasury will sell $15 bln in 20-yr bonds this afternoon.

    Crude oil is reclaiming yesterday’s loss while the U.S. Dollar Index is up 0.3% at 102.82.

    2-yr: +1 bp to 4.08%
    3-yr: +1 bp to 3.74%
    5-yr: -1 bp to 3.52%
    10-yr: -3 bps to 3.52%
    30-yr: -3 bps to 3.84%


    Early Bonds: U.S. Treasuries mostly lower start, eyes on Chairman Powell panel discussion with former Fed Chairman Bernanke later day.

    2-yr: UNCH at 4.27%
    3-yr: +1 bp to 3.95%
    5-yr: +1 bp to 3.71%
    10-yr: +1 bp to 3.66%
    30-yr: +2 bps to 3.92%


    U.S. Treasuries ended the week mixed with the sixth consecutive loss for the 5-yr note through to longer tenors. Treasury yields moving lower in respo
    [See the full post at: Bond Traders Weekly Outlook: Two Year Note Compresses 2s10s Spread Further]

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