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Some Chop Evident Overnight

US TSYS

T-Notes traded firmer at the re-open, printing through Tuesday's high. There was some early focus on the FT re-hashing a week-old study questioning the efficacy of the Pfizer vaccine vs. some COVID mutations, with the ensuing move retracing as it became more widely apparent that the story represented old news. T-Notes last +0-05+ at 135-19, after another round of choppy trade was briefly in play alongside some dollar weakness. Yields are little changed across the curve, with 30s richening by 0.7bp, representing the largest deviation from closing levels. Flow wise, 20.0K of the FVJ1 125.50/124.50 risk reversal was blocked, buying the puts to sell the calls, building on recently observed Asia-Pac exposure to downside FV structures.

  • The belly of the curve outperformed on Tuesday, with 7s richening by ~3.0bp, while the longer end underperformed as 30s cheapened by a little less than 1.0bp come the close, with some chop evident surrounding comments from Fed Chair Powell. Powell managed to strike a fine balance, not pushing back against recent market moves, while reiterating the broader dovish stance evident at the Fed. As a reminder, the prepared remarks (released at the backend of last week) reiterated the notion that "the economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved." With Powell stressing that QE will continue at its current pace "until substantial further progress has been made toward our goals." The Q&A saw the Fed Chair comment on the recent movement in Tsy yields: "In a way, it's a statement on confidence on the part of markets that we will have a robust and ultimately complete recovery." 2-Year supply saw a 0.1bp tail, with below average cover and below average dealer takedown, stopping at a record low yield.
  • Day 2 of Fed Chair Powell's testimony on the Hill will be supplemented with Fedpseak from Vice Chair Clarida & Governor Brainard, with conventional 5-Year Tsy and 2-Year FRN supply also due.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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