Back The Other Way

TYM2 ticks higher at the re-open, building on the late NY move uptick from session lows. The contract is last +0-05 at 127-14.

• To recap, cash Tsys were 14-17bp cheaper on Wednesday, bear flattening, while unwinding all of Tuesday’s richening, and more.
• Fed Chair Powell backed a 25bp increase at the March FOMC meeting, while he noted that he was open to deploying 50bp rate hikes moving forwards, if inflation doesn’t cool. Elsewhere, equity markets found a bit of a base during European hours, before rallying (SPX +~1.9% at the close), while higher oil prices also applied pressure to bonds (although the relationship isn’t 100% clear cut there, as the market narrative flicks between inflation/stagflation, dependent on the broader news backdrop). Note that some have turned a little more optimistic re: the potential for a ceasefire agreement in Ukraine, with the latest round of Russia-Ukraine discussions to take place on Thursday, in Belarus.
• Fed Chair Powell’s hat tip to the potential for 50bp hikes down the line allowed some rate hike premium to be rebuilt in the OIS strip, with Dec ’22 FOMC dated OIS rebounding to price~145bp of tightening, after dropping below 125bp of tightening on Tuesday. This pressured the Eurodollar strip, with EDH2/Z2 steepening by over 20bp on the day. STIR flow was headlined by a flurry of option activity in EDZ2 puts (over 100K on block), with wider put activity fairly active on the day.
• The latest Chinese Caixin services PMI reading is the major economic release in Asia-Pac hours (a reminder that both of the official Chinese PMI readings and the Caixin m’fing PMI topped expectations earlier this week). Looking ahead, the NY docket will be headlined by the ISM services PMI print, with weekly jobless claims data, Challenger job cuts, factory orders and final durable goods readings also due. On the Fedspekl front, Chair Powell will appear on the Hill again, while NY Fed President Williams and Richmond Fed President Barkin (’24 voter) will also speak.