Steeper, But Contained

A flat restart for TY futures, dealing around late NY levels.

• To recap, the cash Tsy curve twist steepened on Thursday, with the major benchmarks running 1.5bp richer to 1.5bp cheaper come the close, pivoting around 10s. The session was contained in the broader scheme of things, with Tsys moving off of best levels as equities traded higher, while the bid in stocks accelerated during the NY morning. Payside swap flow and moves in EGBs & Gilts also aided the steepening dynamic.
• Plenty of continued debate in the wake of the May FOMC meeting minutes re: the potential for a Fed pause towards year-end after an expeditious hiking cycle, with Bank of America issuing a recommendation to receive Sep FOMC-dated OIS at 2.13% as “the market still prices a small chance of a 50bp hike in Sept, which provides an attractive level to receive Sept FOMC OIS…. The Fed might make the case that reaching 1.75%-2.00% provides a normalization of policy which then offers an opportunity to pause and assess the impact on jobs and inflation.”
• Pending home sales data extended the recent run of soft housing metric readings, although the latest Freddie Mac survey revealed that mortgage rates have eased incrementally from the cycle peak (albeit remaining well elevated vs. late ’21 levels).
• 7-Year supply was very well received, stopping through WI by over 2bp, while dealer takedown hit a record low as the cover moved comfortably above the recent average. This helped underpin the general steepening of the curve.
• Major flow on the day included a WN block by (+4,000) & sale (-2,800), as well as a FV/US block flattener (-27,250/+8,000).
• There isn’t much in the way of tier 1 risk events slated for the final Asia-Pac session of the week, with Chinese equity market & CNY gyrations likely to be in focus. PCE & the final UoM survey reading headline the NY docket on Friday, with the Dallas Fed m’fing activity print also due. A quick reminder that the U.S. will observe the Memorial Day holiday on Monday, which will result in curtailed cash trade on Friday, in addition to a cash Tsy closure and shortened futures trade on Monday.