Flat Start For Futures After Monday’s Twist Steepening

A flat start for TYM2, last +0-03 at 122-06, in line with late NY levels, a touch above the mid-point of Monday’s relatively narrow range.

• To recap, the major cash Tsy benchmarks finished Monday’s session 3.5bp richer to 2.5bp cheaper, with twist steepening apparent, as the curve pivoted around the 7-Year point.
• Tech led the way higher in the equity space, while a bid in oil, on the reintroduction of heightened prospects of European moves against the Russian energy sector, was also noted.
• On the flow side, a late TU/WN block steepener (+19,730/-2.484) aided the wider theme.
• So what drove the market on Monday? The bid in crude likely supported the front end of the curve, with worries re: short-term growth on the back of higher oil prices making their presence felt. Further out, the bid in equities likely provided some pressure. We would also suggest that some of the steepening merely reflected something in the way of profit taking/consolidation after the recent aggressive flattening, which has resulted in various instances of curve inversion. Note that the 2-/10-Year yield spread operated in inverted territory for the duration of Monday’s session.
• The observance of a national holiday in China & Hong Kong will limit liquidity during Asia-Pac hours, although the regional reaction to Monday’s curve steepening will be worth watching. The latest RBA decision provides the headline economic event during Tuesday’s Asia-Pac session, while NY hours will be headlined by the latest ISM services survey, Fedspeak from Vice Chair Brainard, NY Fed President Williams & San Francisco Fed President Daly (’24 voter).