Chunk Of Wednesday’s Richening Unwound

The U.S. Tsy space unwound most of Wednesday’s Omicron pessimism during Asia-Pac trade, with an uptick in e-minis (potentially based on hope for supportive measures from the PBoC and/or greater regional focus on some of the less pessimistic potential outcomes re: Omicron) and hawkish commentary from ’22 FOMC voter Mester (favouring a Q122/early Q222 end to the tapering process, which would give the Fed room for a couple of rate hikes if needed, in her opinion) applying pressure. TYH2 -0-04+ at 130-25, which represents session lows (0-11 range observed thus far) while cash Tsys run 3-4bp cheaper across the curve, with 7s leading the weakness.

• To recap, Omicron worry kicked in during the second half of the NY session, with a higher state of alert creeping in across the globe (and the first case detected in the U.S.), even as questions remain evident re: the mortality threat that the new COVID variant poses. That allowed the U.S. Tsy curve to bull flatten, with 2s finishing ~1.5bp richer on the day, while 30s were ~5bp better off, after the early cheapening impetus was quickly unwound. Late block buys in the long end of the futures curve (+3,500 UXY, +3,000 US & +5,050 WN) added to the broader momentum into the bell. ADP employment data provided no meaningful surprise, while round 2 of Fed Chair Powell’s testimony echoed much of what we heard on Tuesday. Powell underlined the idea that the tapering process doesn’t need to be a disruptive event for markets.
• Challenger jobs cuts and weekly jobless claims data headline the U.S. economic docket on Thursday, while Fedspeak will be provided by Quarles, Bostic, Daly & Barkin.