The Caps Are (Nearly) Set

A flat re-open for TYM2, last +0-04 at 120-26.

• To recap, the cash Tsy curve twist steepened on Wednesday, with paper out to 5s richening on the day. 3s provided the firmest point on the curve, richening by ~5bp, while the 10+-Year zone cheapened by a touch above 5bp.
• The minutes from the March FOMC meeting saw the Fed outline the parameters that it has identified when it comes to shrinking its B/S. The Fed will limit B/S runoff to $95bn/month ($60bn Tsys, $35bn MBS), phased in over 3 months/modestly longer (if market conditions continue to warrant) with all indications that the formal announcement will come at the May FOMC meeting. Interestingly, many participants would have preferred to hike rates by 50bp at the March meeting, although Ukraine proved to be the limiting factor on this front (Bullard was the only dissenter who called for a 50bp hike), with many participants noting that “one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified.” Market reaction was two-way in nature, with benchmark yields across the curve finishing the day around pre-minute levels after fresh YtD highs were registered across the major benchmark yields. The 2-/10-Year and 5-/30-Year yield curves went out around session steeps.
• Note that a couple of FVM2 block buys (+5,500 & +8,250) were seen post-minutes.
• There isn’t much in the way of tier 1 risk events slated for Asia-Pac hours, with weekly jobless claims data and Fedspeak from Bullard (’22 voter), Bostic (’24 voter) & Evans (’23 voter) due during NY hours.