Treasuries End Lower Across Curve

Treasuries prices ended lower across the curve Thursday, curves were mixed with 5Y and longer flatter vs longer dated maturities. The USD enjoyed a big rally with the DXY hitting the highest since late July as equities charged ahead on the pro-reflation trade, posting new all time highs.

Meanwhile, the GBP was down nearly 1% due to uncertainty over the future of Prime Minister Theresa May while the EUR was off over 50 bps with eyes on the Catalonian situation. Commodities were not bothered by USD strength as energy rallied on news Saudi Arabia and Russia discussed further cooperation on oil and after Vladimir Putin noted agreement with extending production caps if needed. Also, news TransCanada scrapped projects to help boost western Canadian oil producers’ access to east-coast refineries helped WTI as too did tropical storm Nate, which could impact the Gulf of Mexico.

Into strength, global macro bought WTI, shops confirmed. Similarly, global macro accounts bought copper. Natural gas squeezed higher early and after EIA natural gas inventories, which were lower than expected but that price action later fizzled. Shops also confirmed aggressive fast money demand in E-mini contracts early along with bullish upside option flow.

Treasuries opened better but started to weaken out of the gates. Fast money sold 10Y early and ongoing put demand was reported in Nov 10Y 124.5 puts paid 12 covered for size. Flows were two-way in the front end with some selling noted in 2019s to buy 2020s while levered money sold 3Y on the curve and also on the swap spread curve.

Into an already thin volume session, the Fed’s Williams spoke slightly hawkish on inflation, which hit Treasuries back. Also, August factory orders data was strong enough to lift a few shops’ third GDP tracking. News that Catalan leaders showed a push for independence also weighed and triggered small stop outs while domestic money sold 30Y. Still the dip was met by better buying with better real and fast money demand and receiving in US swaps in 30Y.

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