2016.06.2108:38:00UTC+00Us Treasuries Slump As Brexit Fear Subsides, Yellen’s Testimony Eyed

The US Treasuries saw selling across the curve on Tuesday during a relatively quiet session that saw little data of much significance in the US. Overall, downward pressure largely stemmed from considerable gains seen in the EU referendum on behalf of those wishing to remain, undermining gains seen in recent sessions stemming from fears of Brexit-related volatility.

The yield on the benchmark 10-year Treasury note rose 1-1/2 basis points to 1.685 percent and the yield on short-term 2-year Treasury note jumped nearly 1 basis point to 0.755 percent by 10:55 GMT.

Although markets are likely to remain volatile until the EU referendum vote is in the rear-view, we could see further selling should this be deemed less of a concern for the Fed (assuming UK voters ultimately decide to remain).

The recent polls in the United Kingdom in run up to the June 23 Brexit referendum indicate that the percentage of citizens in favour of "Remain" the European Union (EU) has outnumbered those who want to "Leave", easing the possibility that Britain might leave the EU after 43 years of membership in the bloc.

According to the NatCen poll results on the United Kingdom referendum campaign, 53 percent would vote to 'Remain' in the European Union, while, 47 percent would vote to 'Leave'. Similarly, the ORB/Daily Telegraph poll results on the United Kingdom referendum campaign, 53 percent would vote to 'Remain' in the European Union, while, 46 percent would vote to 'Leave'.

Interestingly, a UK petition to cancel Thursday's European Union referendum has gathered momentum in support in the days following the killing of MP Jo Cox, the Independent reported. Over 20,000 people have signed the statement on the Parliament website in the last few days calling for the vote to be called off at the last minute. The petition has over double the 10,000 required signatures for it to reach its first hurdle, the government will be obliged to issue an official response to it in due course. At the current rate of increase, the campaign looks set to hit 100,000 signatures before polling day on Thursday, a bar which would normally trigger a debate in parliament.

Moreover, the implied probability of a 'Remain' vote in Thursday's EU referendum has hardened further, to 78 percent, after jumping to 72 percent earlier in the morning, up from 60 to 67 percent, on Friday, according to the latest odds from bookmaker Betfair. William Hill is higher at 83 percent. This is occurring in tandem with the latest run of polls released at the weekend showing the momentum gradually swinging back in favour of the 'Bremaineers' and indeed the declaration of the UK Times newspaper to back the 'Remain' camp.

Markets now look ahead to the first leg of Fed Chair Yellen’s semiannual monetary policy testimony before Congress on Tuesday (before the Senate Banking Committee). Overall, we do not anticipate Yellen will deviate too far from what was seen out of the June statement, likely highlighting Brexit concerns as one factor that helped to keep rates unchanged, possibly hinting at a willingness to resume tightening as economic data gradually improves. However, the Fed’s continued failure to re-launch is likely to restrain market reaction as data dependence has largely come to be viewed as a lack of resolve by many.

Meanwhile, the S&P 500 Futures up 5.75 points to 2,080.75 by 11:30 GMT.