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Cheaper Despite Another Softer Than Expected Inflation Reading

US TSYS

TYU2 is marginally above late NY levels, last dealing +0-01+ at 119-04+ after finishing Thursday just above worst levels of the session.

  • To recap, the major cash Tsy benchmarks finished Thursday’s session little changed to 14bp cheaper as the curve bear steepened. Tsys initially firmed as NY liquidity picked up, peaking after softer than expected PPI data. The move then more than reversed, with the broader space going out around cheapest levels of the day.
  • The impact of lower-than-expected inflation readings on growth expectations and setup for the 30-Year auction were all touted as reasons for the post-data reversal. Flow was also in the mix, with block sales of FV, US & WN futures weighing post-PPI. A bid in crude oil futures and widening breakevens also helped the space lower.
  • A 1.3bp tail on the latest round of 30-Year Tsy supply was enough to trigger a fresh round of steepening and cheapening pressure late in the day, with the dealer takedown at auction ticking away from last month’s record low as the cover ratio nudged lower, moving just below its recent average level. A block buy was seen post-supply, with TY futures lifted (+5K), which may have helped limit losses.
  • An address from San Francisco Fed President Daly (’24 voter) headlines during Asia hours on Friday, although it is likely that she will reiterate her baseline view re: a 50bp rate hike in September, alongside a want to assess the next round of inflation and labour market data before fully committing to any view re: the size of tightening required at the September FOMC meeting. A reminder that Japan returns from holiday today, which will give regional cash Tsy traders an opportunity to react to the last couple of NY sessions.
  • Further out, NY hours will see the latest round of UoM sentiment data (with the inflation expectation components eyed) and Fedspeak from Richmond Fed President Barkin (’24 voter).
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TYU2 is marginally above late NY levels, last dealing +0-01+ at 119-04+ after finishing Thursday just above worst levels of the session.

  • To recap, the major cash Tsy benchmarks finished Thursday’s session little changed to 14bp cheaper as the curve bear steepened. Tsys initially firmed as NY liquidity picked up, peaking after softer than expected PPI data. The move then more than reversed, with the broader space going out around cheapest levels of the day.
  • The impact of lower-than-expected inflation readings on growth expectations and setup for the 30-Year auction were all touted as reasons for the post-data reversal. Flow was also in the mix, with block sales of FV, US & WN futures weighing post-PPI. A bid in crude oil futures and widening breakevens also helped the space lower.
  • A 1.3bp tail on the latest round of 30-Year Tsy supply was enough to trigger a fresh round of steepening and cheapening pressure late in the day, with the dealer takedown at auction ticking away from last month’s record low as the cover ratio nudged lower, moving just below its recent average level. A block buy was seen post-supply, with TY futures lifted (+5K), which may have helped limit losses.
  • An address from San Francisco Fed President Daly (’24 voter) headlines during Asia hours on Friday, although it is likely that she will reiterate her baseline view re: a 50bp rate hike in September, alongside a want to assess the next round of inflation and labour market data before fully committing to any view re: the size of tightening required at the September FOMC meeting. A reminder that Japan returns from holiday today, which will give regional cash Tsy traders an opportunity to react to the last couple of NY sessions.
  • Further out, NY hours will see the latest round of UoM sentiment data (with the inflation expectation components eyed) and Fedspeak from Richmond Fed President Barkin (’24 voter).