Asia To Assess Sharp Turnaround

A flat re-open for TYU2, last +0-01 at 120-05, after the space went out just above cheapest levels at the NY close.

• Tuesday saw Tsys gave back the initial gains that were inspired by the build-up to U.S. House Speaker’s visit to Taiwan, with rhetoric from some of the more historically dovish regional Fed Presidents applying pressure, resulting in a notable round of cheapening. That left the major cash Tsys running 9-22bp cheaper at the close, with the belly leading the weakness.
• San Francisco Fed President Daly echoed weekend rhetoric from Minneapolis Fed President Kashkari as she highlighted that the Fed is nowhere near finished when it comes to its fight against inflation, while Chicago Fed President Evans suggested that he is open to the potential for either a 50 or 75bp rate hike at the Fed’s September meeting (flagging a 3.75-4.00% target range for Fed Funds by the end of Q223 as “sufficiently high”). We also got comments from Cleveland Fed President Mester (’22 voter, hawk), who stressed that the Fed has more to do as inflation has not peaked. This embedded an extra ~10bp of cumulative tightening into the OIS strip through the end of ’22, with ~60bp of tightening now priced for the September meeting (up from ~55bp earlier Tuesday).
• Elsewhere, Pelosi’s safe arrival in Taiwan allowed participants to breathe a sigh of relief on that front, although her impending meeting with the President of Taiwan and Chinese military drills in the area will provide plenty of interest over the next 24 hours.
• Corporate issuance continued to tick over at a healthy pace, boosting activity.
• Fedspeak from St. Louis Fed President Bullard (’22 voter) headlines the Asia-Pac docket, while NY hours will see the release of the ISM services survey, final S&P services PMI, factory orders, final durable goods data and weekly MBA mortgage apps. We will also get the release of the quarterly refunding announcement from the Treasury and a raft of Fedspeak (Barkin, Bullard, Harker & Kashkari).