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Cheaper Ahead Of Powell-Biden-Yellen Meeting

US TSYS

Spill over from Monday’s shunt lower in Bunds (on firmer than expected German CPI) and delayed reaction to the latest round of hawkish remarks from Fed Governor Waller applied pressure to Tsys during Asia-Pac dealing, with TYU2 -0-23+ at 119-13 at typing, 0-03 off the base of its 0-13 overnight range, operating on volume of ~150K during the overnight session. Cash Tsys are 7-11bp cheaper across the curve, with the 3- to 10-Year zone leading the weakness. Wider long end swap spreads suggest payside flows in swaps may have aided the cheapening.

  • Note that the OIS strip currently prices a Fed Funds Rate of ~2.75% come the end of the Fed’s Dec ’22 meeting, per BBG WIRP. This is up from the ~2.65% seen at the close on Friday. Meanwhile, the Eurodollar strip runs 0.25-10.5bp cheaper through the reds, with the reds underperforming on the curve. A quick reminder that Atlanta Fed President Bostic (’24 voter) alluded to the potential for a pause in the Fed tightening cycle in September early last week, while some also suggested that a phrase in the minutes of the May FOMC meeting opened the potential for such a pause around year-end. While Waller’s comments didn’t contain much in the way of new information per se (his hawkish views are well documented), the recent Bostic/May FOMC minute conditioning may be exacerbating the market reaction. Some of the move we have seen may also be linked to setup ahead of Tuesday’s Powell-Biden meeting (Biden has laid out his inflation “plan” in a WSJ opinion piece), with Tsy Sec Yellen also set to join that particular gathering.
  • Note that the confirmation of a fresh round of EU sanctions on Russian oil exports provided a very light bid for Tsy futures in early Asia trade (S&P e-minis have given up some of Monday’s gains as a result, last +0.2%, while WTI & Brent surged further) before selling kicked in.
  • Chinese official PMI data wasn’t as soft as expected but had no meaningful impact on Tsys.
  • Overnight block flow included an FV buyer (+4,100), FV/US (+4,250/-1,200) & TY/US steepeners (+2,000/-900) & TY downside interest via TYN2 119.00 puts (+5K).
  • Eurozone CPI data provides the most notable economic release during the European morning, while NY hours will bring several rounds of second tier house price data, the monthly MNI Chicago PMI reading, consumer confidence and Dallas Fed m’fing activity data. Still, most of the focus will likely fall on the aforementioned Powell-Biden-Yellen gathering.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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