HALISTER1: UST MORNING CALL: Brexit, Fed Pricing, Long-End May Catch-Up

UST MORNING CALL: Brexit, Fed Pricing, Long-End May Catch-Up

(Bloomberg) -- U.K.’s vote to leave EU jolts the market, rally exaggerated due to positioning, volatile markets could constrain Fed’s ability to tighten policy more this yr, analysts say.
  • Wait to see how dust settles, Fed off the table for the year given shock to financial conditions underway; need to seriously consider what is the threshold for possible Fed rate cut (or some other accommodative action), writes RBS in a client note
    • USD OIS now pricing in ~20% chance of 25bp rate-cut across July-Nov. 2016; first hike pushed out first hike to 2018
  • Response to U.K. leaving EU has been supercharged, as many traders, investors had so significantly misjudged the outcome of the vote, writes Triple T Consulting’s Sean Keane: MORE
  • Expect some of the early flight to quality trade in USTs to dissipate during NY hours, writes Seaport Global’s Tom Digaloma in a client note
  • Expected long-end to outperform given risk-off move, though was not the case, potentially due to better liquidity in TY futures; expect curve to flatten as risk stabilizes and trading activity improves, writes BMO in a client note
  • Technicals:
    • Resistance: 134-07 day high
    • Support: 132-01, 61.8% fibo of day range; 131-20, June 20 high
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Sean Keane (Triple T Consulting)
Tom Di Galoma (Seaport Group LLC/The)

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