Treasuries Surge, Extending Post-Inauguration Gains

  • 2-year, 5-year and 10-year yields test 50-day moving averages
  • Heavy volume in eurodollar futures expiring in 2017, 2018

Why There's a Showdown Looming in the Treasury Market

Treasuries rose, extending last week’s response to the protectionist tone of President Donald Trump’s inaugural speech.

Treasuries rose after Trump vowed “a very major border tax” on imports in a meeting with business leaders, after an earlier comment that taxes will be cut “massively” for the middle class and companies appeared to weigh. Yields were lower by 4-8 basis points at 3 p.m. New York time, with the 10-year down by about 6.8 basis points at 2.399 percent.

  • 10Y yield traded below its 50-DMA at 2.392%; it closed below the trendline on Jan. 17 for the only time since September
  • 2Y and 5Y yields also tested their 50-DMAs; 2Y hasn’t closed below the trendline since Nov. 4, 5Y since September
  • Yields declined to session lows along with U.S. equity benchmarks and the dollar, extending Friday’s pattern following the inaugural speech, in which the president promised to upend the political establishment in part via protectionism
  • Volume was heavy in eurodollar futures, particularly in contracts expiring in 2017 and 2018, where most volumes as of 3 p.m. were at least 50% above 30-day average levels
    • EDU7 volume of about 479k was double its 30-day average; about 100k traded from 8am-10am ET, more than triple the 10-day average for the time period
  • 5s30s curve steepened, topping 112bp for first time since Jan. 5; 2Y/5Y/7Y auction cycle begins Tuesday with $26b 2Y, may exert flattening pressure on curve, along with approach of next week’s month-end index rebalance (+0.07yr extension estimated for Bloomberg Barclays Treasury Index)
  • CFTC positioning data released Friday show non-commercial (speculator) shorts trimmed across tenors, from record levels in 5Y and 10Y futures that have been viewed as potential fuel for a rally
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