DJ INDUSTRIAL

(MT Newswires) -- Treasuries cheapened overnight on chatter suggesting the Biden stimulus package could be as high as $2 trillion - up from initial estimates in the $900 bn to $1 trillion range. The near-term upside for the economic outlook linked to greater fiscal support has been constructive on net; even if one might have assumed an overshoot of this magnitude would have been worth more than 2.5 bp in 10-year yields.

The relatively muted response by the US rates market reflects not only the fact that a meaningful bailout deal was already priced in but also the bullish momentum which followed the rejection of Tuesday's attempt to breach 1.186% in 10-year yields.

The composition and outline of Biden's bailout 3.0 will undoubtedly contribute to the underlying support for risk assets, although the overnight price action in Treasuries will suffice as a recalibration and we anticipate a limited response on the rates side to the final numbers - assuming they are revealed to $1.3-$2 trillion range.

The majority of this week's top tier events have been absorbed in favor of a bull flattening reversal from last week's bearish accomplishments. The strong 30-year auction and benign inflation update leave the most noteworthy theme for the balance of the week just how far investors are willing to push the move.

We'll hold off on calling for a swift return to <1% 10s, as the ability of Treasuries to stabilize in this current trading zone points more to consolidation than correction. In 2s/10s, momentum has crossed in favor of a flattener, and we'll be watching the 9-day moving average at 90.5 bp as proximate support on Thursday. BMO

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