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Treasuries Maintain Flattening On Lockdown Fears, Aggressive Hiking

US TSYS
  • Cash Tsys are hanging on for a large twist flattening after an even larger outright bear flattening this morning, kick-started by further supply-side disruption fears following the two-stage lockdown in Shanghai.
  • This has been compounded by a tale of two auctions, with the 2Y seeing a modest tail and weak internals, before the 5Y subsequently stopped through and with further signs of healthier demand.
  • 2YY +5.8bps at 2.328%, 5YY +0.7bps 2.553%, 10YY -0.9bps at 2.464% and 30YY -2.4bps at 2.560%.
  • Fed Funds pricing has generally been wound back through the day but there remains a substantial 210bps of hikes priced over the six remaining meetings this year, weighing on the growth outlook further ahead.
  • Various curve metrics are off earlier lows but remain historically flat: 5s30s at just 1bp (having earlier been inverted for the first time since 2006 with a low of -7bps ), whilst 2s10s are 14bps, within 20bps of the 2019 low and having last seen sustained inversion in early 2007 at the end of a hiking cycle rather than the start.
  • Continued sizeable supply tomorrow with the $47B 7Y auction at 1300ET, along with a return to Fedspeak with Harker (2023 voter) due to give his first post-FOMC thoughts.
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