Futures Unwind Early Losses

TYU2 trades 0-04 shy of the peak of its 0-18 Asia range, last dealing +0-00+ at 116-06+, on sub-average volume of ~65K. The modest volume came about on the observance of the Juneteenth holiday in the U.S., with cash Tsys closed until Tuesday’s Asia-Pac session, while Tsy futures will be subjected to curtailed trading hours on Monday.

• Weekend news flow was headlined by Fed Governor Waller’s latest round of hawkish rhetoric (pointing to support for a 75bp rate hike at the July FOMC), confirmation that U.S. President Biden aims to speak with Chinese President Xi “soon,” as well as utterances from U.S. Tsy Sec Yellen re: high inflation being “locked in” for the remainder of ’22 & the likelihood of a roll back of some of the tariffs levied on China by the Trump admin.
• These matters, coupled with an early uptick for e-mini futures, applied pressure to U.S. Tsy futures at the re-open.
• Cross-asset correlations were at the fore thereafter, with broader gyrations in e-minis and Chinese equities in the driving seat. Tsy futures recovered from intraday lows as e-minis briefly moved into negative territory and Chinese equities struggled in early dealing, before working away from best levels as a rebound in Chinese property developer stocks (aided by another round of localised policy support), some upbeat sell-side musings re: Chinese equities and suggestions that China may pursue “extraordinary” measures to combat the divergence in upstream and downstream manufacturers’ profitability came to the fore.
• Note that Monday will see St. Louis Fed President Bullard (’22 voter) comment on inflation and interest rates.