Curve Twist Flattens On Monday

TYH2 ticks lower at the re-open, moving away from Monday’s late high, but remains comfortably within the confines of yesterday’s range. That leaves the contract +0-02+ at 128-07.

• Twist flattening was at the fore on Monday, with the front end cheapening on Fed rate hike expectations
• Richmond Fed President Barkin (’24 voter) pointed to the potential for a March rate hike in a WSJ interview. Elsewhere, the sell side continued to adjust Fed exp. Most notably, Goldman Sachs now look for 4x rate hikes in ’22 vs. 3x previously in addition to a swifter start when it comes to the balance sheet normalisation process.
• Longer dated yields led the pullback from intraday cheaps as we moved through NY trade (equities also corrected from lows), with benchmarks across the Tsy curve going out 3bp cheaper to 3bp richer, pivoting around the 7- to 10-Year zone. The wings of the curve represented the extremes in moves.
• Fed Chair Powell’s latest testimony will draw most of the event interest on Tuesday. The pre-release of the initial address saw Powell note that he stands ready to prevent elevated inflation from becoming entrenched. "The economy is expanding at its fastest pace in many years, and the labour market is strong," he added. Fedspeak from George and Mester will supplement Powell during NY hours. 3-Year Tsy supply is also due on Tuesday. Meanwhile, NFIB small biz optimism headlines a thin NY economic data docket.