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Forex Flash: 10-year US treasuries still in play due to US economy – RBS

FXstreet.com (Barcelona) - We went neutral at last night's close the market for 10-year US treasuries got within a few basis points of our 1.72% target – according to the RBS Research Team, “daily momentum is deeply overbought (the dailies have really done well at sniffing out intra-range moves since last summer). Moreover, we are not bearish Treasuries because we still see evidence of a short base and because of lingering concerns about a probable step-down in Q2 growth/consumption and employment (versus Q1) due to sequestration, Europe and our belief that the >3% real consumer spending pace in Q1 is unsustainable given real income growth.

Treasuries are generally mixed but the long end trades with a bit more spark with 5-years and 30-years hitting our first downside target this morning at 227bp this morning. Semi-core and peripheral EU debt spreads have tighten nicely today while front end and intermediate JGB's sold off heavily as the Nikkei rallied 1.6% while the Yen hit a multi-year low versus USD (above 97 for first time since Aug 2009). Our overnight Treasury flows picked up today, though not by as much as one would have expected given sharp moves in the JGB market. The 10-year sector saw a lot of the flows on the screens but client activity saw central bank buying in 3-years and some levered buying in 30-years. Total Treasury market inter-dealer overnight volume was 158% of the 10-day average.

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