Flatter & Firmer After Fresh ’23 High For 2s10s On Thursday

Early European trade has seen Tsys firm a little further, leaving benchmark yields 1-6bp lower and the curve flatter after 2s10s registered a fresh ’23 high post-Powell. Still, we are off best levels of the day for outright Tsys.

• Block flow has been biased in favour of purchases thus far, while a familiar FV/US flattener expression was also deployed in Asia-Pac hours.
• As noted elsewhere, soft UK data, Asia-Pac liquidity provisions, the potential for some pre-weekend Israel-Hamas related hedging and Asia-Pac reaction to outright long end yield levels have been touted as potential catalysts for the move.
• A bounce from lows for equities has helped to cap the bid.
• TYZ3 has recovered to 105-24 vs. Thursday lows of 105-10+. Bulls need to take out key short-term trend resistance at the Oct 12 high (108-16) to start turning the tide in their favour. The 20-day EMA provides some intermediate resistance between here and there. Conversely, any break of yesterday’s low would expose the 2.0% 10-dma envelope, at 105-01+ next.
• Powell’s late Thursday comments knocked essentially all of the residual pricing re: odds of an early Nov hike out of the FOMC-dated OIS strip, while terminal policy rate pricing sits ~9.5bp above prevailing levels, a little below post-Powell levels but off early London lows.