Free Trial

Stagflation Worry Remains In The Air


A flat start for TYM2, after the contract finished Wednesday a touch shy of its London/NY crossover peak, last dealing -0-02 at 119-06+.

  • To recap, cash Tsy trade saw twist flattening on Wednesday as the curve pivoted around 5s. 2s provided the weakest point on the curve, cheapening by 2.5bp come the bell, while 10+-Year paper was 7-8bp richer.
  • Rallying crude oil futures and the twist flattening of the Tsy curve, coupled with weakness in equity markets, pointed to stagflation fear being in the driving seat on Wednesday.
  • Breakevens were 8-15bp wider on the session, withs 2 leading that dynamic.
  • This came as U.S. CPI data for April revealed a smaller than expected moderation in both headline and core Y/Y terms, in addition to larger than expected M/M increases.
  • The CPI data resulted in immediate pressure across the curve, although losses were then unwound to varying degrees as we moved through the session and the aforementioned stagflation fear came to the fore, resulting in the previously outlined twist flattening of the curve.
  • A late block buy in FVM2 futures (+20,105) provided some extra support for the belly into the bell.
  • 10-Year Tsy supply saw a 1.4bp tail, with the intraday volatility keeping some prospective bidders sidelined. It is worth noting that the demand metrics were firmer than the pricing side, with the cover ratio incrementally higher vs. prev., moving in line with the recent average, while dealer takedown slid back below its own recent average.
  • Note that there isn’t anything in the way of notable tier 1 data releases slated for Asia-Pac hours. PPI & weekly claims data are due during NY hours, in addition to 30-Year Tsy supply.
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

To read the full story



MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.