Curve Flattens, Powell Flags Higher Rates

TYM3 deals at 110-30+, unchanged from yesterday's settlement level.

• Cash tsys finished 12bps cheaper to 2 bps richer across the major benchmarks on Tuesday. The curve twist flattened pivoting around 20s.
• Fed Chair Powell noted in Senate testimony that he envisages a higher terminal rate than is currently projected. Powell also suggested that the Fed could re-accelerate hikes to 50bps pressuring Tsys, also noting that nothing about recent data suggests the Fed have tightened too much.
• 2-Year yield roses above 5%, and 2s10s inversion printed a fresh cycle low at -105.5bps, closing just off extremes.
• In OIS markets ~40bps of tightening is now priced into the March meeting, the terminal rate is now seen at ~5.6o%, rising ~15bps yesterday.
• Earlier in the session, a bid in EGBs as inflation expectations in the ECB's Consumer Expectations Survey dropped spilled over allowing Tsys to print session highs.
• The latest 3-Year auction priced 0.6bp through WI, above recent average bid/cover ratio and indirect take up were observed.
• There is a thin data calendar in Asia-Pac hours today. Further out we have final Eurozone GDP, MBA Mortgage Applications, ADP Employment , Trade Balance and JOLTS Job Openings. Elsewhere, Fed Chair Powell’s Senate testimony continues and we have the latest 10-Year Tsy supply.