We believe we are entering a time period where the US government shutdown might end soon possibly this week itself. Trump has shown a tendency to make major decisions before crucial holidays. With Thanksgiving on 27th Nov, we believe Trump, Republicans & Democrats don’t want responsibility for a public outcry on travel outages and food stamps availability. Hence the shutdown is nearing it’s end in our view. Meanwhile, the US Supreme Court, in its opening questions, appears to be sceptical about the legality of Trump’s tariff. A deal to end the US government shutdown and a potential rollback of US tariffs by the top court would be positive for risk assets into year-end. This has adverse implications for 10yr UST yields. Especially the Supreme Court judgement on IEEPA tariffs. A rough estimate is around 150 BN USD refund if the IEEPA tariffs are rolled back. This will have adverse impact on US fiscal deficit and term premiums. But what truly shaped our decision was the latest SLOOS data. In absence of official employment data, credit should put true light on the current state of US economy. SLOOS shows the net % of banks reporting stronger demand for C&I loans from large and medium firms turned +ve for the 1st time since Jan this year. Banks, on balance, reported stronger CRE loan demand for nonfarm non-residential properties for the first time since January 2022. Stronger demand for business loans supports the view that business fixed investment will increase going forward, driven by easing of economic uncertainty and new tax cuts. After seeing the latest SLOOS we believe employment might not be the deciding factor for a Dec rate cut. In fact, CPI readings can play a larger role in ensuring that Dec stays a hold rather than a cut. Term premia also remain low relative to fundamentals such as bond supply and inflation risks. 

Summary: Hence, we now see 10yr UST gradually moving towards the 200 DMA at 4.30 levels from the current 4.09. 

Trade Reco: SELL 10 YEAR UST (CURRENT YIELD 4.09), TP 4.30 & SL 3.90 

Risks to the view: Continued sell off in US equities or exceptionally weak US employment data.

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