Back From Tuesday’s Best Levels

TYM2 opens just below late NY levels, -0-01 at 120-11, looking through the latest round of missile launches out of North Korea.

• To recap, cash Tsys were firmer on Tuesday, with the overnight NASDAQ-driven equity weakness (linked to disappointing guidance from social media name Snapchat) and the withdrawal of some Fed rate hike premium on the back of softer than expected U.S. economic data (existing home sales, Richmond Fed m’fing index and the latest round of S&P PMI prints). Note that the year-end Fed Funds rate is now seen at 2.66%, per the OIS strip, vs. 2.78% seen late on Monday and near 3.00% cycle peak observed earlier this month.
• Atlanta Fed President Bostic (’24 voter) fleshed out his thesis re: hiking with care after he flagged the potential for a period of pause in Fed tightening (namely in September) on Monday.
• Roll activity boosted wider volumes, while an NY afternoon rebound for equities allowed Tsys to move off of best levels (the DJIA managed to add ~0.2% on the day come the bell).
• That left the major cash Tsy benchmarks 8-14bp richer at the close, as the curve bull steepened.
• 2-Year Tsy supply was well received, stopping through WI by 0.7bp. although the cover ratio moderated a touch from levels observed at the previous auction, falling back in line with its recent average. Elsewhere, dealer takedown nudged higher, but remained comfortably below its own recent average.
• The latest RBNZ monetary policy decision provides the headline risk event during Asia-Pac hours, while Wednesday’s NY session will see the release of the minutes from the most recent FOMC decision, durable goods and MBA mortgage apps data, 5-Year Tsy & 2-Year FRN supply and Fedspeak from Vice Chair Brainard.