Marginally Cheaper Ahead Of Powell

Tsys hold to relatively tight ranges with a light cheapening bias intact.

• The major cash benchmarks sit 1.0-1.5bp cheaper.
• TYU3 -0-05+, just off worst levels after a move through the prior early London low.
• A bounce from lows in equity futures probably capped any richening in Tsys.
• Macro headline flow has been dominated by Chinese economic support measures and touted moves to prop up the country’s equity market.
• Elsewhere, RTRS sources flagged a growing likelihood of a pause in the ECB’s tightening cycle, which provided some brief & limited support.
• Terminal policy rate pricing on the FOMC-dated OIS strip has nudged up to 5.47% (come November), with ~42.5bp of cuts then showing through June ’24. Both measures are a touch firmer on the day.
• The market seems willing to make room for hawkish remarks from Fed Chair Powell, potentially raising the bar for a hawkish surprise (which we had already suggested was relatively high).
• Still, benchmark Tsy yields operate off cycle highs.