GLOBAL MACRO: CFTC Positioning: Traders Sell AUD

Treasuries closed Friday little changed, underperforming global peers.

• Futures traded within Thursday's ranges, with data having little lasting impact: November flash services PMI was much stronger than expected and the highest since March 2022, though soft employment and output price inflation metrics softened the impact.
• Elevated final November UMichigan survey long-term inflation expectations saw Treasuries hit the worst levels of the day, but the move reversed.
• The limited move in yields stood in contrast to pronounced gains in Europe, where weaker-than-expected PMIs renewed concern over regional growth and boosted ECB rate cut pricing. That helped boost Treasuries in overnight trade, but as noted, the US rate move subsided.
• Futures volumes remained robust (2.4M TYZ4), though again it was largely quarterly roll-related.
• The curve twist flattened on the day, and Friday's moves left 10Y yields just 2bp lower on the week.
• Latest levels: The Dec 24 T-Note future is up 5/32 at 109-21, having traded in a range of 109-16.5 to 109-26.5.  2-Yr yield is up 1.8bps at 4.3665%, 5-Yr is down 0.9bps at 4.2948%, 10-Yr is down 1.8bps at 4.4041%, and 30-Yr is down 1.1bps at 4.5906%.
• MNI's weekly US macro wrap is here (PDF).
• Next week's schedule is condensed by the Thanksgiving holiday, with highlights including FOMC Minutes (MNI Preview here - PDF) and GDP/PCE data. 

Friday's US rates/bond options flow included:

• SFRZ4 95.50/95.56/95.62c fly, bought for 0.75 in 5k total.
• SFRF5 95.75/95.62/95.50p fly, bought for 3 in 5k.
• SFRM5 96.50/97.00cs, sold at 5.25 in 8k.
• SFRM5 97.00/97.50c strip vs SFRZ5 97.50c, bought the strip for flat in 5k
• SFRZ5 96.125 ^ sold at 87.5 in 500
• 2QH5 97.25/97.50cs, bought for 1.5 in 5k
  
   

This week has seen a further shift higher in the expected Fed funds path through 2025, with futures-implied effective rates seen remaining above 4% through to the September 2025 FOMC - 7 meetings from now. See below. A December cut is barely seen at higher probability than a coin flip. See table below.

• Since last Friday, futures markets have priced out cuts by a further 10bp through that period, leaving fully-implied cuts at just 2x 25bp through the July 2025 FOMC, and a cumulative 65bp of cuts from now through end-2025.
• To put this into perspective, the FOMC's September projections foresaw a median end-2025 rate of 3.375% - only 1 of 19 submissions saw rates above where markets are currently priced by end-2025 (1 at 4.125%; there was 1 at 3.875% and  all others at 3.625% and below; vs 3.92% FF implied).
• Some analysts have begun forecasting even more cautious paths: this week saw Deutsche eliminate any 2025 Fed cuts from its baseline, and even the 25bp it expects in December is a close call.