Growth Fears Front & Centre

A flat reopen for TYM2, dealing +0-09+ at 118-15+.

• To recap, global growth & stagflation worries continued to hamper risk assets on Monday, with the S&P 500 shedding over 3% come the bell. This eventually filtered through into the Tsy space allowing the Asa-Pac/European reaction to Friday’s bear steepening impulse to more than reverse, with fears surrounding the Chinese labour market (in lieu of a warning from Chinese Premier Li) and continued sanctions on Russia front and centre.
• Those growth worries allow some of the Fed rate hike premium to be unwound from the short end, with the OIS strip now pricing ~97bp of cumulative tightening across the next two FOMC meetings, with a cumulative ~185bp of tightening priced by year end. This compares to 102bp and 199bp on Friday, respectively.
• The unwind of Fed rate hike premium meant that the front end of the Tsy curve led the bid, with the major benchmark Tsys finishing 7-15bp richer across the curve, bull steepening. TYM2 went out just shy of best levels after lodging a fresh cycle low in the late European morning. 10-Year Tsy yields operated in a ~17bp range.
• Russia’s Victory Day parade came and went without much to note. There was some worry that Russian President Putin could have used the stage to announce the next steps re: the country’s “special operation” in Ukraine, which was identified as a risk-negative factor during Asia-Pac hours.
• There isn’t much in the way of tier 1 macro risk events slated for Asia-Pac hours, so focus will fall on the region’s digestion of Monday’s NY price action, which will be supplemented by headline watching.
• Small business optimism data is due during Tuesday’s NY session, with a deluge of Fedspeak (Williams, Waller, Mester, Kashkari & Barkin) & 3-Year Tsy supply also due.