Aggressive Cheapening On Thursday, Apparent Profit Taking In Flatteners

TYZ2 operates around late NY levels, just off Thursday’s low.

• Yields were 7.5-18.5bp higher on Thursday, with the 7- to 10-Year zone leading the weakness as fresh cycle highs (in yield terms) were registered across the curve, with most of the weakness coming during the NY morning.
• The intermediate-led weakness meant that the 2-/10-Year yield spread failed to register fresh cycle extremes in terms of the level of inversion, while the 5-/30-Year spread hit another cycle low, before backing off.
• Weakness in Gilts aided the move lower, while desks flagged an unwind of flattener positions and some focus on the potential liquidation of Tsys surrounding Japanese FX intervention as factors to note.
• The latter point likely fed into the tightening of swap spreads.
• Some early block sales in futures also helped the cheapening, with technical selling in cash & futures also noted.
• A holiday in Japan means that cash Tsys will be closed until London hours.
• Friday’s NY docket will see the release of flash S&P PMI data. Elsewhere, Fed Chair Powell is set to give opening remarks at a Fed Listens event as the post-FOMC blackout comes to an end.