Squeezing Higher Into European Hours

Fresh cycle highs for crude oil futures (Brent printed above $111.00) applied pressure to U.S. Tsys in early Asia dealing, although the space has since recovered from session cheaps. This came as crude futures moved off their peak (although WTI & Brent are still ~$5/bbl firmer on the session), while reports of Russian troops entering Kharkiv through the air did the rounds (with Ukraine pointing to an attack on a hospital). U.S. President Biden’s assertions re: Russia e.g. “Putin will pay a high price over the long run,” having a limited impact on wider price action. Biden also tried to assure the U.S. public that he will do everything he can to combat inflation, in what was his first State of the Union address. We have also seen Russian banks start to wind up some of their European entities. TYM2 -0-02 at 128-20+, moving to fresh session highs into European hours (aided by a 3K block buy in the contract). Cash Tsys run 2.5bp richer to 1.0bp cheaper, twist steepening. Note that FOMC dated OIS now prices ~23bp of tightening at the Fed’s March meeting i.e. a 25bp hike is not fully priced in, while ~118bp of tightening is priced in for calendar ’22 i.e. less than 5x 25bp rate hikes. ADP employment data headlines the economic release docket during NY hours (ahead of Friday’s NFP reading, cue discussions/debate re: correlation between the two), with Fedspeak from Powell (day 1 of his testimony on the Hill), Bullard & Evans, as well as commentary from NY Fed’s Logan (on asset purchases), also due.

• JGB futures went out at best levels, adding 62 ticks on the day, although it wasn’t all one-way traffic after a solid round of richening during the overnight session. Cash JGB trade saw the major benchmarks richen by 2-5bp on the day, with 7s outperforming, owing to the bid in futures.
• ACGBs ticked higher into the close, with Tsys off worst levels, although the space had been a little more reluctant to go offered than its U.S. counterpart, perhaps pointing to some early signs of cross market demand. YM +10.0 & XM +11.5 at the close, with the 7- to 10-Year zone of the cash curve outperforming on the day. The space looked through virtually in line with exp. Q4 domestic GDP data.