Bailey Fallout Eyed

TYZ2 operates marginally above late NY levels, +0-00+ at 111-05, looking through the usual rounds of hawkish rhetoric from Fed’s Mester.

• Tsys initially regained some poise on Tuesday after a round of block sale-fuelled cheapening during Asia-Pac hours, with 10-Year yields failing to take out triple top resistance drawn off of the ’09, ’10 & YtD highs.
• The BoE’s early London efforts to provide the market with confidence (adding indexed-linked Gilts to its temporary purchase plan) was further aided by block buys in FV & TY futures (after the Asia-Pac block sales in those contracts).
• Still, BoE Governor Bailey applied pressure to the space late in the day, deploying blunt language as he reaffirmed the BoE’s end date for its temporary Gilt purchases, pressuring Tsys & e-minis, while fuelling a bid for the broader USD. That left the major cash Tsy benchmarks flat to 8bp cheaper at the bell, with bear steepening observed.
• The latest BoK decision provides the focal point during Asia-Pac hours (50bp hike expected), while regional reaction to Bailey’s comments, followed by Gilt market adjustments (Bailey’s comments came after the close of Gilt trade), set to shape pre-NY trade.
• Wednesday’s NY docket is headlined by the minutes from the latest FOMC decision, PPI data, 10-Year Tsy supply and Fedspeak from Bowman, Barr & Kashkari.