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Street Color: Direction in Treasuries in Week Ahead Will Be Driven by February Refunding Auctions, Consumer Price Report, BMO Capital Says

· 02/05/2021 08:27

01:23 PM EST, 02/05/2021 (MT Newswires) -- In the week ahead, the Treasury market will have two macro events to drive the broader outlook; the February refunding auctions on the supply side and the January consumer price report will provide an update on the trajectory of inflation, BMO Capital Markets said.

Once the realities of the underwriting process have passed and the real data triggers a recalibration of recovery expectations, the US rates market will find 10-year yields centered closer to 1.0% than 1.25%, the bank said. Implicit in this call is the potential for 10s to spend at least a portion of 2021 with a 0-handle as the progression through the pandemic and toward herd immunity encounters inevitable headwinds.

"Given the post NFP selloff brought long bond yields as high as 1.985%, a 2-handle for 30s at Thursday's auction offers an enticing target and one that implies a continued steepening of the 10s/30s curve as a greater concession if nothing else, BMO Capital said. "The last time 30s were available in the primary market with a 2-handle was Feb 2020 when the Feb 2050s stopped at 2.061%."

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