Tsys Unwind Early Asia Downtick, A Touch Richer Into Europe

A lack of meaningful macro headline flow has made for a tight Asia-Pac session when it comes to core FI markets. TYH2 looked through Wednesday’s lows as Asia-Pac participants reacted to Wednesday’s hawkish Fedspeak, while Harker (’23 voter) & Daly (’24 voter) joined in during Asia hours, pointing to support for a March rate hike. TYH2 bounced from worst levels, operating at the top of the narrow 0-07 range observed ahead of London hours, last -0-04 at 128-14+. Cash Tsys sit ~1bp richer across the curve.

• To recap, the major cash Tsy benchmarks finished Wednesday trade 0.5-3.5bp cheaper. 2s led the way lower, with the 7- to 10-Year area of the curve lagging the broader sell off. Fresh pressure crept in late in the day, after a WSJ interview with St. Louis Fed President Bullard saw the ’22 FOMC voter note that four interest rate rises in 2022 now appear likely. Elsewhere, Fed Vice Chair in waiting Brainard noted that inflation is too high (underscoring the central bank’s recent pivot in the release of the initial text from her upcoming testimony on the hill), while the remainder of the text largely echoed comments made by Chair Powell earlier in the week. Higher crude oil prices provided a further source of pressure for the space. Earlier in the day, CPI data was largely in line with wider expectations, which allowed the space to richen a touch given the recent hawkish Fed repricing and greater degree of worry attached to an upside surprise/short market positioning. 10-Year supply wasn’t particularly firm, tailing by 0.3bp, while the cover ratio held around the recent averages. Dealer takedown edged upwards, topping its own recent average, but remained below 20%.
• PPI and weekly jobless claims data headline the NY economic docket on Thursday. Elsewhere, Fedspeak will come from Brainard (as she delivers the aforementioned testimony in DC), Barkin & Evans, while Tsy supply comes in the form of 30-Year paper.