Turnaround Tuesday

A flat start for TYU2, dealing -0-03+ at 119-24, in line with late NY levels after the contract closed just above late session lows. Note that e-minis have rallied since settlement, with the NASDAQ contract leading the way (last +1.5%) in the wake of Alphabet & Microsoft earnings/guidance.

• To recap, Tuesday’s early bid that was linked to wider risk aversion (Walmart’s guidance warning, worry surrounding gas flow to Europe and the IMF downgrading its global GDP growth productions were all noted) was more than reversed as we moved through the NY session, leaving the major cash Tsy benchmarks running 1-4bp cheaper come the bell as the curve bear flattened. Note that TYU2 ran out of steam ahead of its technical bull trigger (located at the July 6 high).
• There wasn’t much in the way of key fundamental triggers for the reversal in Tsys (equities were still comfortably lower on the day come the bell), leaving the aforementioned technical matter at the fore. Data was generally on the softer side of expectations (consumer confidence, new home sales and various house price metrics), with the only real exception to that rule being the beat for the Richmond Fed manufacturing print. A block sale in UXY futures (-5,838) helped the space lower.
• A solid round of 5-Year Tsy supply helped the space find a bit of a base, before another downtick was observed into the close. In terms of auction specifics, 5s stopped through WI by 1bp, as the cover ratio ticked higher, moving back in line with its recent average as dealer takedown slipped below its own recent average.
• Note that wider Tsy market volume remained subdued on the day.
• Australian Q2 CPI data presents the headline economic data release during Asia-Pac hours, although don’t expect too active a session for Tsys given the proximity to Wednesday’s FOMC decision (see our full revie of that event here. Wednesday will also bring the release of prelim. durable goods data, as well as pending home sales and MBA mortgage apps.