Marginally Firmer In Early Dealing As Debt Ceiling Impasse Continues

TYM3 deals at 113-22+, +0-04+, marginally firmer in early dealing on Monday as the impasse over the US debt ceiling continues. Staff level talks have resumed, and President Biden and House Speak McCarthy are due to meet on Monday.

• Cash tsys finished 1-4bps cheaper across the major benchmarks on Friday, the belly led the weakness.
• In an interview over the weekend Minneapolis Fed President Kashkari noted he is open to the idea of “moving more slowly” when tightening policy.
• The impasse over the US debt ceiling dominated flows in Tsys on Friday, through the European session losses moderately extended the optimism over a deal on the US debt ceiling carried over from Thursday.
• News of Republican negotiators walking out of talks saw tsys firmed in a volatile risk off moves, however daily ranges remained intact.
• Fed Chair Powell noted that the Fed has come a long way in policy tightening, that policy is restrictive and that there is uncertainty about the lagged effects of rate rises.
• FOMC dated OIS price ~5bps of hikes into the June meeting with ~50bps of cuts priced for 2023.
• There is a thin data docket today, looking ahead the US Debt Ceiling talks will dominate the week with the markets keeping one eye on US PMIs (Tuesday) and the FOMC Meeting Minutes (Wednesday).