T-Notes Climb Amid Tech Equity Weakness, Bull Flattening Impulse Remains

T-Notes edged higher in early trade, as e-minis dropped on the back of disappointing post-market earnings reports from some top tech names including Alphabet and Microsoft. TYZ2 ran to 110-23 before retracing some gains, but then promptly found poise again. The contract last changes hands +0-05+ at 110-23+, while Eurodollars trade unch. to +1.5 tick through the reds. Cash U.S. Tsy yield curve has bull flattened in morning Tokyo trade, building on overnight impetus; yields last sit 1.4-2.5bp lower.

• Tuesday saw U.S. Tsy curve bull flatten as underwhelming data on house prices (largest monthly drop since 2009) and consumer confidence suggested that rate hikes delivered to date are starting to have effect, provoking the reassessment of Fed tightening outlook.
• U.S. 5-Year/30-Year spread returned to inversion territory, last sitting at -1.46bp; 2-Year premium over 10-Year debt has widened to 38.9bp.
• The market still sees the FOMC raising the fed funds rate by 75bp next month, but terminal rate pricing has moderated at the margin.
• Local data highlights include wholesale inventories and new home sales, with 5-Year Tsy auction also coming up.