Recession Fears Swell

TYU2 operates around late NY levels at the re-open, last dealing -0-04 at 119-25+.

• Outright worry surrounding recession continued to intensify after U.S. participants returned from their elongated weekend, leaving cash Tsys 2-8bp richer across the curve come Tuesday’s close. 10s outperformed, allowing the 2-/10-Year yield spread to move back into inverted territory.
• European growth worries were the driving factor, with continued energy related woes and a modest downward revision for French Services PMI data providing the highlights early in the European morning. This outweighed the overnight positives surrounding Chinese Caixin services PMI data and hope re: Sino-U.S. tariff matters (although subsequent indications from press outlets pointed to a very limited round of tariff rollbacks on the part of the U.S.).
• Crude oil was sharply lower, with the wider recessionary narrative, another round of strength for the broader USD and worry surrounding the COVID situation in China weighing. This pulled breakevens lower across the curve.
• Still, the space managed to close off of richest levels of the session, with U.S. equities regaining some poise after the cash close of their European counterparts (S&P 500 +0.2% at the close).
• There isn’t much in the way of tier 1 risk events to note on the Asia-Pac docket, while Wednesday’s NY docket will be headlined by services ISM data and the release of the minutes from the most recent FOMC decision. We will also get weekly MBA mortgage apps, final services PMI data and the latest JOLTS job opening print. The release of the FOMC minutes from the June meeting will be bolstered by Fedspeak from NY Fed President Williams.