PMIs Trigger Latest Move Away From Cycle Cheaps

TYU2 operates around late NY levels, last dealing -0-02 at 117-19, after finishing Thursday’s session comfortably shy of its intraday peak.

• To recap, the major benchmark cash Tsy metrics finished Thursday 4-8bp richer, with the belly leading the bid. Slower than expected expansion in the Eurozone & U.S. flash PMI readings allowed Tsys to richen through early NY trade, as recession/stagflation worry continued to intensify, facilitating a moderation in major central bank tightening pricing. The Fed Funds rate is now seen at 3.45% at the end of the central bank’s December meeting (showed as low as ~3.35% on Thursday), per the OIS strip.
• The moves were more pronounced in EGBSs, with the German Schatz lodging the biggest rally observed since the GFC. Note that Tsys pared back from richest levels of the day after the cash close for European paper.
• Short cover was also touted as a major driver of the richening, with open interest pointing to a sharp pull out in TY futures shorts in recent sessions.
• Fedspeak saw Governor Bowman flag her support for a 75bp hike in July, followed by additional 50bp moves.
• In market specific news, the Treasury opened an RFI which will solicit public opinion re: additional post-trade data transparency for secondary market transactions in the space.
• Looking ahead, there isn’t much in the way of tier 1 headline risk events slated for Asia-Pac hours. Meanwhile, Friday’s NY session will bring the release of new home sales data, the final UoM sentiment reading and Fedspeak from Bullard (’22 voter) & Daly (’24 voter).