Asia To Assess The Bear Flattening

TYM2 opens a touch above late NY session lows, last dealing -0-04+ at 118-23.

• To recap, the cash Tsy curve bear flattened on Tuesday, with benchmark yields rising by 7-14bp across the curve come the close. 3s provided the weakest point on the curve, while 20s were the least willing to go offered (based on daily change in yield levels).
• The risk positive feel in Asia-Pac hours (derived from hopes re: regulatory respite for the Chinese tech sector and the Shanghai COVID situation) initiated the sell off, with firm UK labour market data, hawkish ECB speak and stronger than expected U.S. retail sales data keeping the pressure up through the early part of the U.S. morning. Softer than expected NAHB housing market data provided some respite, before the sell off resumed. Pressure continued into the bell with Chair Powell clearly focused on inflation. While he initially reaffirmed the idea that there was some two-way risk to the degree of tightening that would be required, based on observed inflation dynamics, he became more hawkish as the WSJ interview progressed, stressing that the Fed will move beyond neutral rate levels if required, highlighting an “overwhelming need” to control inflation, with no time for very nuanced readings re: price pressures. The OIS strip now prices in a year-end fed funds rate of 2.82% vs. the 2.72% seen at Monday’s close.
• A move higher in equities and jumbo US$ issuance from a couple of corporates also fed into the wider price action.
• Japanese GDP and Australian wage price data provide the highlights of the regional data docket during Asia-Pac hours, although we shouldn’t see much in the way of macro repricing in the wake of those events (unless WPI creates a large reaction in the ACGB space). We will also get comments from Chicago Fed President Evans. Wednesday’s NY session will bring the release of housing starts & building permits data, 20-Year Tsy supply and Fedspeak from Philly Fed President Harker.