Asia To Assess Woeful Wednesday For Risk Appetite

TYM2 is flat at the re-open, dealing just shy of late NY highs, unchanged at 119-14.

• To recap, the major cash Tsy benchmarks richened by 3-12bp come Wednesday’s close, bull flattening in the process. It wasn’t all one-way traffic, with notable programme block sales in both FV & TY futures applying pressure into NY hours.
• A weak day for equities (S&P 500 -4%) was the trigger point for the bid in Tsys. Equity weakness was aided by soft earnings and guidance from retailer Target, which fed into general recessionary/stagflation fear (as did the latest batch of UK & Canadian CPI prints) and news of a district lockdown and mass COVID testing in areas of the Chinese city of Tianjin.
• When it comes to wider growth concerns, note that Goldman Sachs marked down their Chinese GDP estimate for ’22, while J.P.Morgan have cut their estimates for U.S. GDP growth through ’23.
• 20-Year Tsy supply saw solid enough demand against this backdrop, stopping through WI by 0.2bp, although the cover ratio eased back to sit just below recent average levels. Dealer participation nudged higher but remained below recent average levels.
• The space went out around richest levels of the session, although a block sale of FV futures (-7,063) may have prevented further gains into the close.
• Australian labour market data headlines the wider docket during Asia-Pac hours, while eyes will be on the Chinese markets in the wake of the aforementioned COIVD developments in Tianjin and Chinese Premier Li’s latest comments, which saw him underscore the nation’s ability to deal with the challenge that it faces currently, as he vowed to support tech platforms and the private sector, while flagging a step up in the adjustment of macro policies. Thursday’s NY session will see the release of existing home sales data, the latest Philly Fed business survey and weekly jobless claims prints. We will also hear from Minneapolis Fed President Kashkari (’23 voter) and get 10-Year TIPS supply.