Bostic & Goldman Trigger Bear Flattening

Atlanta Fed President Bostic alluded to the risks of a swifter pace of rate hikes over the weekend (but stuck to his baseline call of 3 hikes in ’22), this, combined with a more hawkish Fed call from Goldman Sachs (looking for 5x 25bp hikes in ’22 vs. 4x prev.), applied some bear flattening pressure to cash Tsys overnight. Participants seemed to look through the continued geopolitical tension surrounding Russia. Still, the Lunar New Year holiday period curtailed broader activity, with TYH2 sticking to the 0-05 range established early on, last -0-02+ at 127-28. Cash Tsys run 1.5-3.5bp cheaper across the curve. TUH2 block activity headlined on the flow front in Asia (with price action pointing to a 6K block buy being followed up with a 6K block sale).

• To recap, Tsys unwound Friday’s early losses as we worked through NY hours at the backend of last week. Softer than expected employment cost index data and (the usual) dovish commentary from Minneapolis Fed President Kashkari (’23 voter) helped support the space. PCE data largely met exp. Fed rate hike premium saw a marginal unwind as we moved through the day, even with some notable sell-side names providing more aggressive Fed tightening calls. That left cash Tsys at the richest level of the day come the bell, with benchmark yields ~1.5-5.0bp lower on the day.
• Looking ahead, NY hours will see the release of the latest MNI Chicago PMI reading, in addition to the Dallas Fed manufacturing activity print. Meanwhile, Fedspeak will come from Kansas City Fed President George (’22 voter) & San Francisco Fed President Daly (’24 voter)