A Touch Cheaper Overnight, Fed QT To Commence

A light bid in e-minis and Atlanta Fed President Bostic (’24 voter) fleshing out his thought process re: a potential September pause when it comes to tightening (the idea of a Fed put never factors into his thinking, coupled with the reaffirmation that he is willing to take policy settings beyond neutral, if inflation doesn’t slow significantly) placed some light pressure on Tsys in early Asia dealing. TYU2 traded through Tuesday’s base, before the space pulled back from session cheaps. This was perhaps aided by slightly softer than expected Chinese Caixin manufacturing PMI data and geopolitical angst, as China conducts military drills near Taiwan and Russia’s nuclear forces conduct their own drills in Ivanovo province.

• Still, ranges were tight, with TYU2 last -0-07+ at 119-07, 0-02 off the base of its 0-08+ Asia range. Cash Tsys run 1.0-2.5bp cheaper across the curve, with the belly leading the weakness.
• Note that some also attributed the start of the Fed’s QT scheme (which goes into action today) as a contributary factor to the early cheapening.
• 2x block buys of TYU2 futures (+4.5K apiece) provided the highlight on the flow side as we moved towards London hours.
• Looking ahead, NY hours will bring the ISM m’fing print, JOLTS jobs data, weekly MBA mortgage apps and the latest Fed Beige Book. Fedspeak will come from NY Fed President Williams & St. Louis Fed President Bullard (’22 voter), while the latest BoC decision will provide some interest in goings on across the border (a 50bp hike is expected by all but 1 of the 30 economists surveyed by BBG).