Thursday’s extremes are guideposts
October 16, 2023
–USZ3 bond contract is under pressure this morning, trading 111-29 from Friday’s settle of 112-25. Thursday was a big day last week, with longer end maturity contracts making new highs early and then plunging after a weak 30y auction. Continued supply is weighing on treasuries. TY, US and WN all had large outside range days on Thursday, and closed near the lows. In my opinion, a close below Thursday’s lows ( 107-04 in TY, 111-07 in US, 115-06 in WN) will mean a move to much higher yields. Important events will be tomorrow’s Retail Sales and Wednesday’s 20y bond auction. Closing above Thursday’s highs may well signal the end of the bond bear market. (TY 108-16, US 114-10 , WN 119-14). This morning the 20y yield is 5.05%, very close to being the highest point on the treasury curve (2-yr currently 5.07 and 30’s are 4.84). By Wednesday afternoon 20s will likely be the highest point.
–There are a few Fed speakers this week, but in general the message is: financial conditions have tightened, the long end and stronger dollar are doing the Fed’s tightening job, we can afford to wait in the larger context of risk management.
