ECB Sources Story Sees TY Retest Friday’s Low

TYZ2 flirts with Friday’s low at the re-open, with the EUR gaining on the back of a RTRS source report which suggested that “story suggested that “European Central Bank policymakers see a rising risk that they will have to raise their key interest rate to 2% or more to curb record-high inflation” (note that OIS already prices a rate of 2.3% come June ’23, which could be limiting follow through in rates), while news that Ukraine has regained some of the territory lost to Russia may also be factoring in

• The curve twist flattened on Friday, with the major benchmarks running 5bp cheaper to 3bp richer, pivoting around 7s.
• Fedspeak helped the front end to cheapen (Sep FOMC dated OIS was incrementally higher to ~73bp, with terminal rate pricing now above 4%), with 2s registering fresh cycle highs. The Fed has now entered is pre-FOMC blackout.
• A late block sale in WN futures (-2K) saw a pause in the curve flattening, before it resumed into the close.
• Some also pointed to hedging for Monday’s double 3- & 10-Year Tsy supply, alongside expectations surrounding continued brisk corporate issuance, as drivers for price action.
• That double auction provides the highlight of Monday’s calendar, although focus is squarely on Tuesday’s CPI print.
• Holidays in Hong Kong, China & South Korea will limit liquidity in Asia hours.