Brainard Bid Helps Space Off Lows

A BBG source report pointed to current Fed Governor Lael Brainard being a "serious rival" to the incumbent when it comes to the race to become the next Fed Chair, after an interview with President Biden last week. A reminder that Brainard is seen as a more dovish alternative when compared to Jerome Powell, this meant that the Tsy market richened a little in the wake of the story crossing (note that the meeting was already reported by the wires last week). An earlier POLITICO sources piece pointed to Powell being the clear frontrunner in the race, while indicating that a decision will likely be made by Thanksgiving at the latest. TYZ1 +0-07+ at 131-17, 0-02+ off highs, while cash Tsys run 1-3bp richer across the curve, with the belly leading. Asia-Pac flow was headlined by a 5K block buy of the FVZ1 122.50 calls, with a 2,410 lot block seller of TU futures seen as we moved towards London trade.

• To recap, the cash Tsy curve twist flattened on Monday, with the belly leading the weakness as 5s cheapened by a little over 6bp, while 30s richened by ~0.5bp come the bell. The weakness in the front end/belly was aided by soft pricing in the latest 3-Year Tsy Note auction, which tailed by 1bp, while the cover ratio held steady, a touch below the recent auction average. On a more constructive note, dealer participation cratered, falling back below the recent average. Higher crude prices helped drag breakevens wider. Much of Monday's Fedspeak pointed to steady core views when compared to previous comments, but rate hike premium was still added back into the market, adding further weight to the belly of the curve.
• PPI data, a raft of Fedspeak & 10-Year Tsy supply headline the local docket on Tuesday.