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FI Round-Up: Ylds Recede, Option Plays Fade Aggressive Hikes

US TSYS SUMMARY
Combination of technical support on the heels of Tuesday's sharp rout in rates and geopolitical tensions over Russia/Ukraine helped Treasury markets regain some ground Wednesday.
  • On the day, 10YY fell from 1.9006% high to 1.8199% low, 1.8306% after the bell; 30YY from 2.2134% high to 2.1352% low, 2.1426% after the bell.
  • Contributing factors: 10Y German Bund yield went positive briefly amid growing concern over supply chain shortages weighing on German economy.
  • With underlying futures rebound, accts looked to hedge cooling in tighter policy expectations priced into Whites (EDH2-EDZ2 with four .25bp quarterly hikes starting in March): +70,000 Jun 99.25/99.37/99.50 call flys, 2.25 with Jun'22 futures trading 99.225. In that vein: fading tighter policy move by the Fed via put condor sale: -10,000 Jun 99.06/99.18/99.31/99.43 put condors at 4.25.
  • Limited react to data, Housing starts 1.4% vs. -1.7% est, Permits 9.1% vs. -0.8% est; Redbook JAN STORE SALES +14.8%. MNI's Chicago Business Barometer, was revised up to 64.3 in December from 63.1, as a result of the annual seasonal adjustment recalculation. Despite the upwards revision at the end of the year, in aggregate, the Barometer was revised down by -0.1 point in 2021 and revised up by +0.1 point in 2020.
  • Tsy futures held near session highs following brief two-way following $20B 20Y note auction re-open (912810TC2) stop-through: 2.210% high yield vs. 2.220% WI; year high 2.48x bid-to-cover better than last month's 2.59x.
  • The 2-Yr yield is down 2bps at 1.0225%, 5-Yr is down 4.7bps at 1.6113%, 10-Yr is down 4.6bps at 1.8271%, and 30-Yr is down 4.8bps at 2.1396%.
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