Flat Restart After Friday’s Frantic Session

A limited reopen for TYU2, which deals around late NY levels, +0-04+ at 119-13, with the weekend headlines surrounding the Russia-Ukraine conflict (outlined earlier) and the latest default in the Chinese property developer sphere doing little to inspire participants.

• Friday’s main event was the ISM m’fing survey, which provided a miss on the headline level (53.0 vs. BBG median 54.5), with the new orders sub-index providing a surprise contractionary reading (the first such instance since May ’20), while the employment metric held in contractionary territory for a second consecutive month. Construction spending data also provided a surprise fall in M/M terms, with the releases leading to the Atlanta Fed’s GDPNow tracker being marked lower (to -2.1% for Q2).
• The amplified recessionary worry allowed Tsys to extend their pre-NY bid ahead of the Independence Day weekend. The wider Tsy curve bull steepened on Friday, with the major cash Tsy benchmarks running 8-16bp richer on the session, as the belly of the curve outperformed. Still, the space pulled back from richest levels as equities regained some poise and participants booked profit/assessed the size of the recent richening away from cycle cheaps. A block sale of WN futures (-2,689) also helped the space away from richest levels late in the day.
• In terms of Fed pricing, the OIS strip finished Friday pricing in ~68bp of tightening at the Fed’s July meeting, essentially little changed vs. levels seen late Thursday after paring a 5-6bp move post-ISM. Further out, FOMC-dated OIS looks for a Fed Funds rate of 3.31% come the end of the central Bank’s December meeting, after printing around the 3.15% mark post-ISM. EDZ2/H3 & EDZ2/Z3 printed fresh cycle lows on the day, closing around -15bp and -75bp respectively, marginally above their deepest levels of inversion.
• There isn’t much in the way of meaningful economic data releases to shape the tone in Asia-Pac trade, which, when coupled with the deminished liquidity and curtailed trade of futures/close of cash Tsys, and general reduction in liquidity owing to the observance of the U.S. Independence Day holiday, means that much of Monday’s price action will be shaped by Asia-Pac reaction to Friday’s moves and any meaningful macro headlines that cross.