Bid To Start The Week

A combination of deeper omicron worry (centring on Europe, in the wake of a lockdown in the Netherlands & the UK, as speculation mounts re: circuit breaker restrictions after Christmas) and U.S. Democratic Senator Manchin’s move to effectively block President Biden’s Build Back Better scheme weighed on risk appetite in Asia, supporting core FI markets. Note that the PBoC’s latest 1-Year LPR fixing moved 5bp lower, surprising most economists.

• Manchin’s move re: BBB saw Goldman mark its ’22 U.S. GDP forecast lower.
• TYH2 threatened a clean break above technical resistance at the Dec 3 high/bull trigger (131-16) into European hours, trading as high as 131-17+. The contract has backed off to sit +0-10+ on the day at typing, printing 131-15+. Volume in TYH2 has topped 150K lots. Cash Tsys run 3.0-4.5bp richer, with 5s leading as the wings of the curve lag. Eurodollar futures have seen some bull flattening, running flat to 5.5bp firmer through the reds.
• To recap, T-Notes finished a little below the mid-point of their Friday range at the end of last week, with hawkish comments from Fed Governor Waller re: rate liftoff and balance sheet runoff applying some pressure during the NY afternoon. The curve twist flattened around the 7-Year point, with 2s cheapening by a touch over 2bp on the day, while 30s richened by the best part of 5bp, going out around firmest levels. It would seem that weakness in the U.S. equity space supported the longer end of the Tsy curve, while the aforementioned hawkish rhetoric from Waller provided the pressure further forward.
• There isn’t anything in the way of notable tier 1 risk events slated during the remainder of Monday’s session, which will leave headlines & broader risk appetite at the fore.