Some Demand In Asia

Friday’s post-NFP cheapening in global core FI markets seemed to draw money from the sidelines, in Asia, resulting in a bid during early Tsy future and JGB dealing.

• Cash Tsys run little changed to 2bp richer across the curve as a result, bull flattening, with TYH2 last +0-06 at 126-30+, 0-01 off the peak of the contract’s 0-09 Asia range. The contract did register an incremental fresh multi-year low at the re-open, before the aforementioned demand supported the space. TYH2 operates on solid volume of over 135K. Note that flow was headlined by 20K of block sales in FVH2 118.75 put options vs. 14K of block lifts in FVJ2 117.50 puts, in what looked to be some profit taking coupled with rolling down & out. There was also steady screen buying of TYJ2 128.00 calls through the session, totalling nearly 7K lots.
• There wasn’t much in the way of meaningful weekend news flow observed, outside of one of the most noted ECB hawks (Knot) giving his view on rate hikes (1 in October ’22 & 1 in Spring ’23, which lags market pricing). Elsewhere, another ECB hawk, Kazaks, played down the prospects of a July rate hike. We also saw continued headwinds for UK PM Johnson & utterances out of China looking for relatively muted inflationary pressures.
• To recap, a much firmer than expected NFP reading (which came against a backdrop of worry re: a downside surprise/negative reading) printed outside the top of the range of those surveyed by BBG +467K (median +125K, range of estimates -400K to +250K). This triggered bear flattening of the curve on Friday, with major benchmarks across the Tsy space going out 6-12bp cheaper on the day.
• 35bp of tightening was priced for the FOMC’s March meeting dated OIS as of Friday’s close, but that has pared back to 33bp.
• Looking ahead, the NY docket is virtually empty.