Treasury Action: curve flatteners should be the trade into month-end
Treasury Action: curve flatteners should be the trade into month-end given the complementary impacts of a large duration extension for December 1 and the near-certain prospects for a Fed rate hike next month. Longer dated coupons should retain a solid bid thanks to the relatively sizeable (though consistent for a refunding month) 0.12 year extension, according to the Barclays index. Concurrently, the front-end remains heavy as the market prepares for the first Fed tightening move since last December. The 5-30s spread has been narrowing since the poor 3-, 10-, and 30-year auctions just after the election. It sunk to 116.9 basis points on Friday, which was the lowest since October 3, and it's clinging to 117 basis points currently. The narrow for the year was 104 basis points at the end of August, just after Yellen surprised with her Jackson Hole comment that the case for a rate hike had strengthened.