Twist Flattening, Fed Pricing Eyed

The U.S. Tsy curve builds on the reestablishment of flatteners on Tuesday, after the abrupt SVB/Fed repricing-inspired steepening, with Asia-Pac hours seeing some light (by recent standards) twist flattening, as the major benchmarks run 2bp cheaper to 3bp richer, pivoting around 3s.

• The large moves in FOMC-dated OIS witnessed in the aftermath of the SVB meltdown have moderated a little, although Fed terminal rate pricing on the OIS strip continues to show below 5.00% (just), vs. levels of over 5.50% seen less than a week ago. Year-end Fed funds pricing is ~60bp off the low, but still prices in 65-70bp of cuts vs. current terminal rate pricing.
• The 2-/10-Year Tsy curve is ~25bp back from yesterday’s session steeps and ~50bp off deepest levels of inversion seen in this cycle, while the 5-/30-Year curve is ~10bp off yesterday’s session steeps and just over 40bp off deepest levels of inversion of the cycle.
• There wasn’t much in the way of net impact on Tsys in the wake of the release of the monthly Chinese economic activity data.