Futures Maintain Cheapening Bias; 75bp Hike For Sep FOMC Continues To Firm

Tsy futures operate a little off their post-ECB and Fed-induced lows, with TYZ2 -0-06 at 115-25 last, 0-02+ off of its Thursday’s base.

• To recap, cash Tsys ran 5.5-7.5bp cheaper across the curve heading into the close, with the belly leading the way lower. 2-Year yields sit a shade above 3.50% at writing, keeping the benchmark just under 15-year highs observed on Sep 1 (~3.55%).
• Thursday’s cheapening came amidst a move by the ECB to hike all three interest rates by 75bp, with the move lower accelerated by comments from Fed Chair Powell, with market interpretation of that speech leaning towards a 75bp (vs. 50bp) hike at the Sep FOMC.
• Sep FOMC dated OIS now price in ~72bp of tightening at that meeting, with the measure having drifted higher from ~66bp observed at the beginning of the week.
• From a technical perspective, TYZ2 remains vulnerable, having breached the bear trigger at 115-23 earlier in the week. Support is now seen at 115-13+ (Sep 7 low), while on the other hand, initial resistance is located at 116-26 (Sep 2 high).
• Looking ahead, Chinese CPI and PPI will draw focus in a relatively data-light Asia-Pac session, with Japanese money supply for Aug due as well.