TYM2 trades on the backfoot as crude oil futures pull lower to start the week, with the latter dynamic likely aided by weekend comments from Yemen's Houthi group, as it noted that it was suspending missile and drone strikes on Saudi Arabia for three days. RTRS have highlighted that the group said the peace initiative “could be a lasting commitment if the Saudi-led coalition fighting in Yemen stopped air strikes and lifted port restrictions.” A reminder that missiles launched by the group successfully struck Saudi oil facilities on Friday of last week.
- The impulse from lower oil prices is seemingly outweighing other news flow from the weekend, which were headlined by the declaration of a two-stage lockdown in the Chinese city of Shanghai, while the White House had to quickly row back comments from U.S. President Biden which seemingly pointed to a want for regime change in Russia, stressing that was not the end goal of U.S. policy re: the Russia-Ukraine conflict.
- Thus, the move lower in crude oil prices has taken some of the stagflationary element out of Tsy futures (at the margin), leaving TYM2 -0-01+ at 121-16, as the contract takes a look below Friday’s worst levels.
- To recap, the recent run of weakness in U.S. Tsys extended ahead of the weekend, with a fresh round of hawkish FOMC views from the sell-side, focus on reports flagging Russia targeting “full control” of a limited area of Ukraine, as opposed to the whole country, and potential convexity-hedging related flows seemingly in the driving seat on Friday. That left Tsys 5-15bp cheaper across the curve come the close, with 5s leading the weakness as the curve bear flattened.
- There isn’t anything of note in terms of wider risk events on Monday’s Asia-Pac docket. Looking ahead, NY hours will bring advance goods trade data, inventory readings and the latest Dallas Fed m’fing activity print. Meanwhile, 2- & 5-Year Tsy auctions headline on the supply front.