Off Worst Levels Into Europe, Bear Flattening Again

A combination of spill over from Thursday’s cheapening, hawkish sell-side calls (Nomura now look for back-to-back 75bp rate hikes from the Fed in June & July after a “likely” 50bp move in May), hawkish BoC speak and weakness in Aussie bonds applied pressure to Tsys in the Asia-Pac session, although the space has corrected from worst levels of the day ahead of London dealing.

• TYM2 trades -0-05 at 118-19, 0-11 off fresh cycle lows, on volume of ~155K. Note that TU-UXY contracts showed through their Thursday lows after the Nomura Fed call hit the wider wires, with a flow-drive element likely exacerbating weakness at that time.
• Cash Tsys sit 1.5-3.5bp cheaper across the curve, bear flattening.
• FOMC meeting dated OIS now prices a cumulative ~151bp of tightening across the next 3 Fed meetings i.e. 3 consecutive 50bp hikes are fully priced.
• The Eurodollar strip moved with the wider bond market gyrations, trading 2.0-3.0 ticks lower through the reds at typing, also off of worst levels.
• Flash PMI data from across the globe headlines the broader docket on Friday.