Limited Re-Open, No Reaction To Biden-Xi Call Timeline

A pretty limited start for TY futures, last dealing around late NY levels, +0-03+ at 117-28+. The market has looked through confirmation that Messrs Biden & Xi will speak in the coming 10 days. Note that President Biden also suggested that it is not a good time for House Speaker Pelosi to visit Taiwan. This is seemingly a conciliatory move ahead of the call with Xi, after a recent FT source report suggesting Pelosi would take a delegation to Taiwan in August drew criticism from the Chinese Foreign Ministry.

• To recap, cash Tsys finished 1.5bp richer to 1.5bp cheaper on Wednesday, with the 5- to 10-Year zone cheapening, while the wings richened. A bounce in equities allowed the early bid in Tsys to unwind as we worked our way through NY dealing. Hardline comments from Russian Foreign Minister Lavrov re: the potential deepening of the Russian “special operation” in Ukraine if the west delivers long range weapons to Kyiv supported the Tsy space & weighed on equities earlier in the day. The robust rate of corporate issuance witnessed on Monday & Tuesday was maintained on Wednesday, although wider Tsy market volume was once again limited.
• 20-Year Tsy supply was well received, stopping through WI by 2.7bp, while dealer takedown hit a record low and the cover ratio was little changed, in line with its recent average. That auction result allowed the 5-/30-Year curve to re-invert, building on the flattening impulse that had been observed ahead of supply.
• The latest BoJ decision headlines the wider docket during Asia-Pac hours, although no changes to monetary policy are foreseen. Further out, Italian political matters (with PM Draghi’s resignation seemingly due on Thursday) & the ECB decision will shape early Thursday trade (with the 25/50bp rate hike decision and details surrounding the ECB’s anti-fragmentation tool providing the two key points of focus there). Thursday’s NY docket is headlined by the latest Philly Fed survey, weekly jobless claims data & 10-Year TIPS supply. The resumption and flow rate of gas flows through the Nord Stream pipeline will also be eyed.