Bull Steepening On Thursday

TYM2 is flat at the re-open, last dealing -0-11 at 119-21+.

• Cash Tsys were 3-8bp richer across the curve come Thursday’s close, bull steepening, although the space finished back from firmest levels of the day.
• Continued worry surrounding the COVID situation in China (Beijing denied the city was heading into a widespread lockdown) and some worry surrounding the Chinese property developer sphere (again) triggered defensive flows ahead of the NY session, eroding some of the Fed rate hike premium priced into the short end (although that pared back from dovish extremes, with OIS still pricing ~100bp of tightening over the next couple of FOMC meetings)
• A late NY block buy of FVM2 (+12,673) provided fresh support for the space ahead of the bell, before an uptick from lows for equities allowed the space to pare some of its gains.
• Late NY rhetoric from Fed Chair Powell had nothing in the way of meaningful impact on the space, as he reiterated his preference for 50bp hikes at the next couple of meetings, while indicating two-way risks around wider tightening i.e. an ability to do more or less dependent on the evolution of economic matters, as he stressed that inflation is “way too high.” Powell also noted that the Fed’s ability to engineer a soft landing may be based on factors that are outside of its control. Earlier in the day U.S. Tsy Sec Yellen reiterated her hope that the Fed will be able to fight off inflation without causing a recession.
• 30-Year Tsy supply stopped through WI by 0.9bp, with the cover ratio incrementally higher vs. prev. auction, marginally above its recent average, while dealer takedown moved further below its own recent average.
• There isn’t much in the way of meaningful event risk slated during Asia-Pac hours, so focus will fall on wider headline flow and the Chinese COVID situation. U.S. hours will bring terms of trade data, in addition to the latest UoM sentiment reading and Fedspeak from Mester (’22 voter) & Kashkari (’23 voter)