Treasuries Pare Weekly Declines After Trump Inauguration

  • Yields retreat from pre-inauguration highs with U.S. stocks
  • Futures open-interest data indicate new shorts set Thursday

Why There's a Showdown Looming in the Treasury Market

Treasuries were mixed in late trading Friday after erasing declines that pushed the benchmark 10-year note’s yield above 2.50 percent for the first time since Jan. 3. It traded as high as 2.511 percent in the hour before the U.S. presidential inauguration and retreated afterward as U.S. equities approached session lows and the dollar weakened.

Treasuries began to rebound shortly after Trump took the oath of office amid the heaviest futures volume of the day; 151k 10-year contracts, 80k 5-year contracts and 25k 30-year contracts traded from 12 p.m.-12:30 p.m.

The 2-year led yields lower as the dollar fell and gold rose to session highs amid televised confrontations between police and inauguration protesters.

  • Yields climbed earlier in the session concurrently with most euro-zone government yields amid indications of new short positions in futures. Except for the 2-year, yields remained higher on the week, with most of the increases occurring on Jan. 18 after Fed Chair Janet Yellen said she agreed with the FOMC median forecast for “a few” rate increases per year through 2019
  • Yields rose Thursday on strong U.S. economic data, and preliminary CME futures open interest data suggest new short positions were established in selloff, weighted to long end; changes included 13k in TU (2-year), 43k in FV (5-year), 46k TY (10-year) and 7k in both US (bond) and WN (Ultra bond)
    • CFTC Commitments of Traders report, updated weekly on Friday afternoons, last week showed record non-commercial (speculator) net shorts in FV and TY
  • Indications of short positioning also included a block trade in Ultra 10Y futures said to be part of a sell program evident over past 3 sessions
  • UST 5s30s curve steepened by about 2.5bp to 111bp, reaching session highs in late trading as yields declined; Fed speakers Harker and Williams commented on the potential for the Fed to begin to shrink its balance sheet, which several others have done in the 2 weeks since minutes of the FOMC’s Dec. 14 meeting raised the issue
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