HALISTER1: UST MORNING CALL: FOMC in Focus; U.S. Inflation Expectations

UST MORNING CALL: FOMC in Focus; U.S. Inflation Expectations

(Bloomberg) -- Treasuries edge lower overnight as risk bounces, gilts lead declines, FOMC in focus.
  • If it not were for the EU referendum, RBS says it would be calling for a bearish move based on hammer patterns, overdone momentum and “extreme” sentiment readings
  • “Substantial” receiving of U.S. forward rates seen in yesterday’s session from foreign real money cross-market vs U.K., says Morgan Stanley in a client note
    • Fed staff’s 5-year/5-year forward gauge was last updated at 1.45% as of Friday; if it follows market gauges over past few days, will be near 1.35%, 1bp above all-time lows: MS
  • Still too soon for the Fed to guide the market toward July rate increase, prefer trades that position conditionally for bullish bias beyond Q2, writes SocGen in a client note
    • Recommend buying a 3m10y receiver spread ATM/1.35% vs selling 3m5y receiver with strike of 1.07%; locks in 5s10s flattener at 50bps: SocGen
  • Focus on FOMC decision, Fed dots release; no policy changes expected, median dot for 2016 expected to still show two hikes, 2018 median dots likely to fall by 12.5bps; preview here
  • Brexit risk is overshadowing FOMC meeting, expect Fed to hold, refraining from any hawkish statement, writes Seaport Global’s Tom DiGaloma in a client note
  • Technicals:
    • Resistance: 131-28+ (pivot line); 132-03+ (pivot r1); 132-07+ (June 14 high); 132-14+ (pivot r2); 132-17+ (Feb. 11 high)
    • Support: 131-17+ (pivot s1); 131-09 (June 9 high); 131-00+ (June 10 low)
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Tom Di Galoma (Seaport Group LLC/The)

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