Back From Overnight Highs, Russian False Flag Fear Elevated

Asia-Pac trade saw core FI markets draw a bid from unverified Russian reports which pointed to Ukraine conducting mortar and grenade attacks on the separatist region of Luhansk, as false flag fears intensified. Note that the issue has only been covered by Russian state media, with scepticism surrounding the source of the reports resulting in the paring of a chunk of the initial risk-off moves in the wider cross-asset space. Note that early Asia-Pac dealing saw U.S. officials point to a further 7K Russian troops gathering near the Ukrainian border in recent days (contrary to Russian rhetoric on the matter). TYH2 +0-12 at 126-06, 0-09+ off the overnight peak, with the contract operating in a 0-22+ range on a more than healthy and comfortably above average ~295K lots. Cash Tsys run 4-6bp richer on the day, with the belly leading on the curve.

• To recap, the front end of the curve led the bid on Wednesday, as the major benchmarks ultimately richened by ~1-6bp, with bull steepening observed. The lack of fresh hawkish impulse from the minutes covering the latest FOMC decision and a lack of firm detail re: the Fed’s B/S runoff plan provided support late in the day. 20-Year Tsy supply was solid, stopping on the screws, with the cover ratio holding steady, pretty much in line with the recent auction averages. Dealer takedown was marginally lower than the previous auction, below its own recent average. The space then cheapened away from richest levels late in the session, seemingly on the back of comments from a senior Iranian Foreign Ministry official, who noted that “after weeks of intense negotiations, we have come closer to an agreement than ever, but nothing has been agreed until everything has been agreed,” with regards to the nuclear talks in Vienna.
• Looking ahead, weekly jobless claims, housing starts, building permits and Philly Fed activity data headline In NY hours. We will also get Fedspeak from Bullard & Mester, as well as 30-Year TIPS supply