Back The Other Way

A flat re-open for TYU2, last dealing -0-01+ at 118-10+, bang in line with late NY levels after finishing a little shy of Monday’s peak.

• To recap, cash Tsys were 3-9bp richer across the curve come the close, with the 10- to 20-Year zone leading the bid. The defensive tone observed in Chinese equities (based on COVID worry and fines for some of the big tech names in the country) permeated through London hours, allowing a bid to build in core global fixed income markets. On top of this, worries surrounding the resumption of gas flows from Russia to Europe after the annual maintenance work on the Nord Steam pipeline in completed (maintenance got underway on Monday) fed into the defensive flows.
• A chunk of the broader post NFP cheapening was reversed on Monday, with the 2-/10-Year yield spread pushing further into inverted territory, closing around -9bp.
• 3-Year supply was well-received against this backdrop, stopping through WI by 0.5bp, with the cover ratio holding around the recent average as dealer takedown moved lower, to sub-average levels.
• A block sale of UXY futures (-3.5K) helped cap the rally in the latter rounds of NY morning dealing.
• Volume was comfortably below average on the day in both futures and cash.
• Fedspeak saw Bullard (’22 voter) & Bostic (’24 voter) reaffirm their support for a 75bp hike later this month, while George (’22 voter) flagged some caution re: the impact of rapid hikes, although underlined the need for the continued removal of policy accommodation.
• There isn’t much in the way of tier 1 risk events slated for Asia-Pac hours. Looking a little further out, Tuesday’s NY docket will provide the latest NFIB small business optimism reading, along with Fedspeak from Barkin (’24 voter) & 10-Year Tsy supply.