Asia Assesses Steeper Curve

TYH2 operates around late NY levels, last +0-01 at 131-15.

• To recap, aggressive bear steepening dominated the first NY session of ’22, with 2s closing ~4bp cheaper, while the longer end of the curve was ~12bp cheaper come the bell. The S&P 500 lodged a fresh all-time high in closing terms but failed to top the intraday all-time highs registered last week. TYH2 tested technical support in the form of the 76.4% retracement of the Nov 24 - Dec 20 rally (129-12+), which held and represented the low of the day.
• 30-Year yields closed above 2.00% for the first time since Nov 23 (when Omicron worry first bit).
• It wasn’t a purely one-way story for risk assets, with equity futures briefly trading lower after the NY cash open, while Tsys extended their weakness in early NY hours.
• Breakevens widened on the day.
• The resumption of corporate issuance provided a further source of pressure (~$11bn of $IG).
• On the flow side, a late block seller of WN futures was seen (-3K), while over 70K of the TYH2 127.00 puts were lifted on screen throughout the day (paper paid 0-14 on ~21K, before 0-15 was paid on 50K),
• Relatively widespread holidays (observance of the turn of the calendar year in various financial centres in Asia, London & Canada) limited broader liquidity, although TY volume topped 1.3mn on the day.
• Caixin manufacturing PMI data out of China headlines during Asia hours, while the NY docket will bring the release of the latest ISM manufacturing survey & JOLTS jobs data. Elsewhere, Minneapolis Fed President (dove, ’23 voter) will speak re: the economy.