Firming & Flattening Continues Post-Powell

TYH3 operates just shy of its late NY peak, last +0-02+ at 114-22.

• Cash Tsys were 7-14bp richer come the bell on Thursday, with the curve bull flattening.
• This came as the post-Powell move extended, with no pushback in Thursday’s Fedspeak re: Wednesday’s market reaction & softer than expected U.S. data (most notably M/M PCE inflation metrics & the ISM m’fing survey) facilitating the move. Short covering flows provided another input, per several desks.
• A further moderation in rate hike premium embedded into Fed dated OIS also supported the bid, with ~51bp of tightening now priced for this month’s meeting & a terminal rate of ~4.85% now eyed.
• 10s printed at the richest levels since September in the process, with the 2-/10-Year yield spread now sitting just under 10bp off the deepest levels of inversion witnessed during the cycle (Monday’s low in the spread), halting a short daily run of steepening of that curve.
• Chinese COVID matters will likely continue to dominate headline flow during the final Asia-Pac session of the week, while NY hours will be headlined by the latest NFP print (see our full preview of that event here). Fedspeak from Barkin & Evans will supplement that data release.