Early Gains More Than Reversed In Asia

Early Asia trade saw flow-related regional reaction to Thursday’s NY risk-off price action (a reminder that risk-off moves pared back from their regional extremes as Asia went home on Thursday). Broader price action then flicked to risk-on as a meeting between U.S. Secretary of State Blinken & Russian counterpart Lavrov was confirmed (it will take place next week, providing there is no Russian invasion of Ukraine), which pressured core FI markets. Note that several overnight reports out of Russia pointed to a continued, partial pullback of troops and military equipment from the Ukrainian border.

• TYH2 pushed through its Thursday peak at the re-open, before the confirmation of the aforementioned Blinken-Lavrov meeting weighed. TYH2 -0-02+ at 126-11 as a result, 0-04 off worst levels, operating within a 0-15 range, on ~190K lots. Cashs Tsys sit 1.0-1.5bp cheaper across the curve.
• To recap, continued western doubt re: Russian claims of a partial military pullback fed into the risk-off narrative on Thursday (after the shelling of Luhansk, Ukraine). Meanwhile, U.S. President Biden & Secretary of State Blinken reinforced their view that a Russian invasion of Ukraine could take place in the coming days. Longer dated breakevens fell sharply on the back of the latest 30-Year TIPS auction, which experienced a tail of ~6bp. Cash Tsys richened by 5-8bp on the day, with the belly of the curve leading the bid. Note that some of the more hawkish market pricing points re: the Fed continued to pare back in recent days e.g. dated OIS now prices in ~35bp of tightening at the March FOMC (after briefly hitting 50bp post-CPI & Bullard on Thursday of last week). Meanwhile, December FOMC dated OIS is pricing in ~150bp tightening, back from the ~175bp printed last Thursday.
• Friday’s NY docket will see the release of existing home sales data, as well as Fedspeak from Brainard, Waller, Williams & Evans (Evans is a ’23 voter, while the remainder hold permanent voting status). We also remind you that cash Tsys will be closed on Monday, while futures trade will be shortened, owing to the observance of the President’s Day holiday.