Fast Money Interest Seen in 10Y at Lower Levels Amid Light Volumes

Dealers reported light flows in both Treasury cash and futures amid fast money interest in the 10Y at lower levels, . Dealers cited chatter noting some accounts were fading the front end flattening into next week’s supply, particularly in the 2/7Y.

Dealers said despite the belly of curve trading rich it has followed the day’s trend as traders initiated 2/7Y steepeners into supply. In the past eight years, when the Zscore of 2/7s hits -2.9 or lower the curve has steepened back over the following four days 67% of the time, dealers said. The average win is 5.1 basis points, average loss is -2.4 basis points, while the total P&L is 23.0 basis points. The Z-score is currently -2.8.