Assessing Monday’s Cheapening

TYZ2 deals around late NY levels, +0-00+ at 117-04 after recovering from worst levels of the day on Monday.

• To recap, cash Tsys finished 3-7bp cheaper across the curve on Monday, with 7s leading the weakness.
• The initial impulse from Powell’s hawkish communique (at Jackson Hole on Friday) and subsequent hawkish rounds of ECB speak pressured Tsys through Monday’s Asia-Pac session, with the space finding a bit of a base ahead of European hours and the cash market pause related to a London holiday. 2s registered the highest yield level since ’07 in the process.
• A pullback in European gas prices, with Germany pointing to gas prices falling soon and progress on its storage targets, allowed the hawkish impetus from the above to moderate a touch.
• Note that 20s and 30s printed fresh session highs in yield terms during the second half of the NY morning, perhaps aided by an uptick in oil prices, which was attributed to social unrest in Iraq and concerns surrounding tight oil markets.
• Looking ahead, German state and national CPI data will be eyed on Tuesday, particularly with the debate re: the need for a 75bp ECB hike in Sep stepping up. The NRW print (due at 05:30 London) provides the first release of note on that front. Various ECB speakers will also cross throughout the day.
• The NY docket will be headlined by JOLTS jobs data, various house price metrics and the conference board consumer confidence print. Elsewhere, NY Fed President Williams (permanent voter) and Richmond Fed President Barkin (’24 voter) will speak.