Intermediates Underperform Pre-Fed, Dot Plot Eyed

A flat re-open for TYZ2, which deals around late NY levels.

• Cash Tsys were 3-7bp cheaper on Tuesday, with the 7- to 10-Year sector leading the weakness and the space finishing a little off of worst levels.
• The 2-/10-Year curve failed to breach the -50bp mark after looking at the Sep lows (not threatening cycle lows at ~-58bp), while the 5-/30-Year curve had a stickier flattening bias (come the close), aided by a well-received round of 20-Year Tsy supply (which came on the heels of a well-received 30-Year auction earlier this month) that benefitted from the pre-auction cheapening.
• The underperformance of the intermediate sector was aided by block sales in FV & TY throughout the day, with the broader weakness getting underway in European dealing on firmer than expected German PPI data and a larger than expected rate hike from the Riksbank.
• Looking ahead, the latest Fed decision headlines the domestic docket on Wednesday (see our full preview of that event here). If the consensus 75bp hike is delivered focus will quickly move to the degree of projected tightening identified in the dot plot. Fed dated OIS currently price in ~80bp of tightening for Wednesday’s FOMC & a terminal rate of ~4.50%, with the latter level proving somewhat sticky after the recent shift higher in pricing.