STIRs And Short End See Move Higher In Yield Terms

The front end continues to lead when it comes to swings in Tsys as Asia-Pac participants fade yesterday’s historic move in the short end of the curve. Cash Tsys run 20bp cheaper to 3bp richer, twist flattening, pivoting around 10s.

• A reminder that 2-Year Tsy yields moved ~115bp from peak to trough between Wednesday and Monday, after Fed Chair Powell’s hawkish guidance re: the potential for a 50bp step at next week’s FOMC gave way to SVB-inspired panic. Monday’s move in 2-Year Tsy yields was the largest seen in decades. The benchmark now sits ~25bp off Monday’s low.
• Movements in FOMC-dated OIS have been noted Asia, with regional participants seemingly cognisant of the continued threat of inflation, despite the worry surrounding contagion linked to the meltdown of SVB, while having one eye on the sheer scope of the recent repricing.
• ~26bp of cumulative tightening is now priced in come the end of the Fed’s May meeting, after full pricing of one further 25bp step (from current interest rate levels) was unwound from the strip on Monday. Still, that represents the terminal rate pricing (4.82%) on the strip at present.
• Further out, FOMC Dec-23-dated OIS has bounced ~40bp from Monday’s lows, per BBG indications, leaving ~70bp of cuts priced in for ‘23, after 90bp of cuts were priced in early Asia-Pac hours.
• The recent richening definitely had a positioning element to it, given elevated shorts at the front end of the curve, making the move more violent.