Cheaper Ahead Of NFPs As China Hope Weighs

TYU2 opens around late NY levels, last dealing +0-03 at 118-11+.

• To recap, the major cash Tsy benchmarks were 1-7bp cheaper come the bell on Thursday, bear steepening on the day. Pre-NY trade saw the space try to balance the idea of potential fresh support for the Chinese economy (with BBG sources the latest to flag the consideration of front-loaded local government bond issuance) against continued fear re: recession. The positives won out in the end, with equities rallying (S&P 500 +1.5% on the day) and Tsys running lower during NY dealing.
• Fedspeak was hawkish, with Governor Waller pointing to a 75bp hike later this month, followed by a 50bp step in September, with a decision to then be made re: potentially pulling back to 25bp increments. Waller also played down worry re: recession, while underscoring the Fed’s commitment to fighting inflation. Elsewhere, St. Louis Fed President Bullard (’22 voter) pointed to the need for a 75bp hike later this month, while reaffirming his view that the Fed needs to get rates to 3.50% this year, while noting his base case of a soft landing for the U.S. economy. He also flagged the potential for rate cuts further down the line.
• IG issuance added to the pressure felt in the Tsy space, while block sales in FV futures added to the weakness observed in the belly.
• There isn’t anything in the way of notable tier 1 risk events slated for Asia-Pac hours, with Friday’s NFP report front and centre when it comes to participants’ immediate focus. Elsewhere, NY Fed President Williams will speak on Friday.