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Bullish Price Sequence

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T-Notes operate around late NY levels, +0-05+ at 133-05. Note that cash Tsys will not open until London hours, owing to the observance of a holiday in Japan.

  • The cash Tsy curve twist flattened on Wednesday with 2s & 5s cheapening by ~2bp on the day, 7s little changed and 30s running the best part of 5bp richer come the bell. Meanwhile, T-Notes saw relatively contained volatility in the wake of the FOMC decision, going out around the middle of their intraday range.
  • To recap, Wednesday's FOMC laid the ground for a tapering announcement at the November meeting, with Chair Powell setting a relatively low bar for such a move. Powell also pointed to the tapering process concluding around the middle of '22, if the economy remains on track. Support for the outlined tapering timeline was widespread within the Fed, with Powell retaining optionality when it came to altering the pace of the tapering as and when required. The Chair was once again keen to delineate the rate hike and tapering processes, pointing to an economy that was still some way off from meeting the parameters that would green light rate hike. Powell also played down worries re: spill over from the China Evergrande situation.
  • A more aggressive dot plot when it comes to the median projected pace of rate hikes over '22 & '23 was the driving force behind the aforementioned weakness in the front end of the Tsy curve, with the introduction of the '24 projections on the matter also providing weight. Post-FOMC flow was dominated by a 50K block buy of the FVV1 123.00 puts.
  • Elsehwere, the Fed tweaked overnight repo parameters, doubling the per-counterparty limit to $160bn/day, to "help ensure continued support for effective policy implementation."
  • The Asia-Pac docket is limited, with Thursday focus set to switch to the latest round of weekly jobless claims data, flash Markit PMIs from across the globe and regional Fed activity indices.