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Focus Back on FOMC, Steady Rate Expected

US TSYS
Monday's risk-off/safe-haven bid for rates as global equities sold off sharply eased Tuesday as contagion angst tied to potential default risk of China's Evergrande cooled. Tsys traded weaker but off lows by the close, equities mildly higher (ESZ1 +14.0 at 4362.0). Focus turned back to Wed's FOMC annc -- for the most part.
  • There was a brief risk-off react to latest Evergrande headlines in early trade
  • that were not unexpected: Tsys blipped higher briefly after latest Evergrande headline stirred default angst after China's second largest real-estate developer missed payments to two banks. China, however, said this may be the case Monday while it appeared to be a knee-jerk react recently as Tsy futures pared losses but reversed move just as quickly.
  • As to the FOMC, steady rate and policy announcement widely expected, most sell-side analysts anticipating a taper annc at the November FOMC meeting.
  • Aside from two-way positioning, trade included option-tied hedging ahead Fri's Oct Tsy option expiry and vs. decent pick-up in corporate issuance: $12.5B.
  • Tsys steady/mixed after $24B 20Y Bond auction re-open (912810TA6) stops through: drawing a high yield of 1.795% (1.850% last month) vs. 1.800% WI. Bid-to-cover 2.36 vs. 2.44 in August.
  • After the bell the 2-Yr yield is down 0.4bps at 0.2118%, 5-Yr is up 0.5bps at 0.8292%, 10-Yr is up 1.4bps at 1.3243%, and 30-Yr is up 1.2bps at 1.8591%.
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