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Covid Curbs Back On

US TSYS

Tsys finishing well off early session highs, near midday lows on light holiday volumes (TYH3 appr 675k by the close - had started the session around 300k).
Markets see-sawed lower following mixed midmorning data:

  • Pending Home Sales much weaker than expected at -4.0% MoM vs. -1.0% est (YoY -38.6% vs -36.7% prior); Richmond Fed Index much stronger than expected at +1 vs -10 est.
  • Mkt optimism over China reopening faded as covid infections surged (MILAN REPORTS 50% PASSENGERS WITH COVID IN FLIGHTS FROM CHINA, Bbg; US TO REQUIRE NEGATIVE COVID TEST FOR TRAVELERS FROM CHINA, Bbg).
  • Carry-over curve steepening through the session: 2s10s +6.476 at -47.469, least inverted lvl since mid-November amid fair amount of unwinds in crowded flattener positions going into year end.
  • Fed funds futures have the policy rate peaking at under 5% by mid-'23 and then receding to around 4.5% by year-end - expectation of rate cuts in late 2023 potentially overpriced.
  • Tsy futures dip slightly after $43B 5Y note auction (91282CGC9) tail: 3.973% high yield vs. 3.970% WI; 2.46x bid-to-cover vs. 2.39x the prior month. US Tsy $35B 7Y Note auction Thu (91282CGB1).
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