Assessing Tuesday’s Squeeze

A flat start for TYM2 after the contract backed away from best levels into the close, last -0-06+ at 128-17.

• The smell of stagflation was in the air on Tuesday, with Tsys bid, oil punching higher and worry surrounding Russian military advances into Ukraine evident. A bid in the EGB space helped Tsys pare Asia-Pac cheapening ahead of NY hours. Short positioning was another likely factor playing into the richening.
• Cash Tsys finished 5-13bp richer on the day, with the belly leading and 20s lagging (note that several sell-side relative value plays involving long 20s on fly structures were stopped out on the move, adding another positioning dimension to Tuesday’s move).
• Some of the Fed hike premium was rolled out of markets, with ~24bp of tightening now priced in for the March meeting, while just under 5 hikes are priced in for calendar ’22 (~122bp).
• There isn’t much in the way of major economic releases to move the needle in Asia. ADP employment data headlines the economic release docket during NY hours (ahead of Friday’s NFP reading, cue discussions/debate re: correlation between the two), with Fedspeak from Powell (day 1 of his testimony on the Hill), Bullard & Evans, as well as commentary from NY Fed’s Logan (on asset purchases), also due.