Curve Bear Flattens Ahead Of FOMC

Tsy futures operate around the lower end of their overnight ranges after a modest uptick in e-minis helped apply some limited pressure in holiday-thinned Asia-Pac dealing.

• Cash Tsys open with a light cheapening bias, led by the front-end, as the space comes online after being closed during Asia-Pac hours, owing to a Japanese holiday. Cash Tsys are 0.5-3.0bp cheaper across the curve, unwinding a little of yesterday’s bull steepening move. The European docket is limited today, leaving focus on the impending FOMC decision (see our full preview of that event here), with the quarterly refunding announcement from the Treasury (see our full preview of that event here), ADP employment data, ISM services survey and final S&P Global Services PMI filling out the NY docket.
• A quick look at the FOMC-dated OIS strip shows 22bp of tightening priced for today’s decision (only 7 of the 103 economists surveyed by BBG look for no move in rates later today). Further out the strip, yesterday’s dynamics (with bank sector jitters, soft U.S. data and ‘x-date’ worry at the fore) removed virtually anything in the way of additional tightening that was previously priced in for the June meeting, while just over 60bp of cuts are priced into the OIS-strip by year-end.