Post-FOMC Minute Move Extends In Asia

TYH2 -0-08+ at 128-18+, at the base of the 0-13+ Asia range, running on nearly 200K lots. This came as Tsys extended on their post-Dec FOMC meeting minute weakness during Asia-Pac hours as the curve bear flattened, with the major cash Tsy benchmarks running 2.0-3.5bp cheaper into European hours. All of the major U.S. Tsy yield benchmarks have moved above their respective Wednesday peaks. Headline flow remained light, with regional follow through from the release of the FOMC minutes outweighing early dip buying & support from lower equity markets (with the resumption of the cheapening move in Tsys eventually fuelling further equity weakness). Regional COVID worry failed to facilitate meaningful support (participants are more at ease on that front, given the apparent diminished risk to life that the Omicron strain presents), while stronger than expected Caixin services PMI data didn’t seem to provide any notable market reaction. On the flow side, a burst of TY screen selling added to the broader weakness, while downside exposure was sought via a block buy of TYG2 128.50 puts (+5K).

• To recap, the minutes from the Fed’s December meeting pointed to the potential for swifter than expected rate liftoff and a more aggressive, earlier balance sheet reduction. That facilitated bear flattening of the curve. A late NY block buy in TY futures (+9,229) helped the space form a base in post-FOMC dealing. The Tsy space had been pressured ahead of the release of the minutes, with some pointing to the much firmer than expected ADP employment print having a delayed impact on price action (with pressure building after the second round of the day’s Fed Tsy purchases was completed), while $IG issuance continued at a brisk pace (in line with the seasonal norm), weighing on the space.
• The ISM services survey tops the NY docket. Thursday’s Fedspeak will consist of addresses from St. Louis Fed President Bullard (’22 voter) & San Francisco Fed President Daly (’24 voter).