A Little Cheaper Overnight

The modest weakness across the bulk of the JGB curve may have applied some pressure to U.S. Tsys during Asia-Pac hours. T-Notes last print -0-04+ at 133-21, with cash Tsys running 0.5-2.5bp cheaper across the curve, bear steepening in play. Most of the macro headline flow has been centred on Sino-U.S. tensions, while sell-side calls & market pricing re: the RBNZ hiking cycle are becoming more aggressive in the wake of the firmer than expected NZ CPI print for Q2. Flow was dominated by a 5.0K lift of the TYQ1 134.25/135.00 1x2 call spread & over 2 price levels via block.

• As a reminder, the curve flattened further on Thursday with the long end richening by ~5.0bp, while the shorter end was little changed on the day. The tightening of longer dated swap spreads, linked to issuance from U.S. financials in the wake of their quarterly earnings reports, aided the momentum in the space, with the same holding true for a downtick for the S&P 500 & NASDAQ 100. Notable flow saw TYU1 lifted on block during the European morning (+10,085), while an apparent mis-weighted TU/TY steepener (+11,065/-7,548) was seen later in the day. Short end flow saw some notable screen buying of EDM2 & EDU2 in early NY trade, with a 12.0K block sale of EDM4 also witnessed. There was no reaction to the latest round of comments from Fed Chair Powell as he testified on the Hill for a second consecutive day. Chicago Fed President Evans ('21 voter) noted that the U.S. economy could make substantial further progress later this year -- a threshold for potential tapering of asset purchases -- and he said interest rates could rise in early 2024 or a little sooner if inflation runs hot. Comments from U.S. Tsy Sec Yellen didn't add much in the way of meaningful, fresh information, and failed to impact the space. Weekly jobless claims data revealed downticks in both the initial and continuing claims figures, although the former didn't see as much of a moderation as was expected, while the prior week's readings were revised higher for both metrics.