Flatter In Front Of Jackson Hole

A flat start with TYU2 last -0-01 at 117-24 as participants await the start of the Jackson Hole symposium.

• The curve bull flattened on Thursday, with the major benchmarks running 2.5-9.0bp richer come the close, as some of the edge came off of the recent cheapening ahead of Fed Chair Powell’s Friday address.
• Market participants continue to assess the potential for a Powell pivot, although the recent rounds of Fed messaging seem to have played down the chances of an outright dovish swing (the Fed has already noted that it will slow the pace of tightening at some point, in addition to some expressing worry re: over-tightening via FOMC meeting minutes).
• Thursday’s richening came despite a generally hawkish round of Fedspeak, which flagged the need for rates to move higher (to varying degrees), as well as continued push back against the idea of fairly imminent rate cuts. St. Louis Fed President Bullard continued to point to a need for front-loading of tightening, reiterating his relatively hawkish view on the year-end Fed funds rate, while others stressed the data-dependent nature of policy when questioned on the chances of a 50 or 75bp step in September.
• Better than expected weekly jobless claims and a marginal upward revision in the second Q2 GDP reading had helped apply some pressure in early NY trade, before the turn away from cheaps.
• 7-Year supply helped the general richening theme, stopping through WI by 2.8bp, while dealer takedown cratered as the cover ratio moved further above its recent average.
• Note that futures roll activity boosted volume on Thursday.
• Focus is squarely on Fed Chair Powell’s Friday address, with the full Jackson Hole symposium schedule set to be released at 01:00 London/20:00 NY (the subject of the symposium is “Reassessing Constraints on the Economy and Policy”).