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Belly Leads The Weakness On Wednesday

US TSYS

TYU2 is flat at the re-open, dealing in line with late NY levels -0-01 at 118-23+.

  • Tsys cheapened on Wednesday (the major benchmarks were 3-10bp cheaper on the session), with the belly leading the weakness come the close. Spill over from UK Gilt dealing drove bear flattening during early London hours (after hotter than expected UK CPI data), although the flattening impetus started to run out of steam during the NY morning, and curves started to reverse the flattening, with the 2-/10-Year spread actually managing to finish steeper on the day as 2s lagged the broader sell off come the bell.
  • A soft round of 20-Year supply (2.5bp tail, the widest since 20-Year auctions were restarted, coupled with a slip in the cover to below recent average levels, and a step up in dealer takedown, topping its own recent average after a record low print at last month’s 20-Year auction) fed into broader steepening pressure as we moved through the day.
  • After that, the impact of the minutes from the latest FOMC monetary policy meeting allowed the steepening theme to extend, as markets provided a dovish reaction to that particular release, at least initially, before a bit of a retrace in the belly & long end. There was a lack of fresh hawkish overtures in the minutes, with continued focus on the Fed’s acknowledgement that it would eventually be appropriate to slow the pace of tightening, with risks surrounding overtightening also flagged.
  • Elsewhere, wider long end swap spreads suggested that payside flows fed into the steepening move.
  • Note that slightly softer than expected headline retail sales data, accompanied by downward revisions to the prior month’s readings and firmer than expected core and control measures, resulted in a pull away from the early NY lows.
  • The monthly Australian labour market report headlines the Asia-Pac docket on Thursday. Further out, existing home sales, weekly jobless claims and the latest Philly Fed survey are due in NY hours. Thursday will also bring the latest round of 30-Year TIPS supply and Fedspeak from George & Kashkari.
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TYU2 is flat at the re-open, dealing in line with late NY levels -0-01 at 118-23+.

  • Tsys cheapened on Wednesday (the major benchmarks were 3-10bp cheaper on the session), with the belly leading the weakness come the close. Spill over from UK Gilt dealing drove bear flattening during early London hours (after hotter than expected UK CPI data), although the flattening impetus started to run out of steam during the NY morning, and curves started to reverse the flattening, with the 2-/10-Year spread actually managing to finish steeper on the day as 2s lagged the broader sell off come the bell.
  • A soft round of 20-Year supply (2.5bp tail, the widest since 20-Year auctions were restarted, coupled with a slip in the cover to below recent average levels, and a step up in dealer takedown, topping its own recent average after a record low print at last month’s 20-Year auction) fed into broader steepening pressure as we moved through the day.
  • After that, the impact of the minutes from the latest FOMC monetary policy meeting allowed the steepening theme to extend, as markets provided a dovish reaction to that particular release, at least initially, before a bit of a retrace in the belly & long end. There was a lack of fresh hawkish overtures in the minutes, with continued focus on the Fed’s acknowledgement that it would eventually be appropriate to slow the pace of tightening, with risks surrounding overtightening also flagged.
  • Elsewhere, wider long end swap spreads suggested that payside flows fed into the steepening move.
  • Note that slightly softer than expected headline retail sales data, accompanied by downward revisions to the prior month’s readings and firmer than expected core and control measures, resulted in a pull away from the early NY lows.
  • The monthly Australian labour market report headlines the Asia-Pac docket on Thursday. Further out, existing home sales, weekly jobless claims and the latest Philly Fed survey are due in NY hours. Thursday will also bring the latest round of 30-Year TIPS supply and Fedspeak from George & Kashkari.