Twist Steepening On Tuesday

TYU2 deals around late NT levels, last +0-02 at 117-22.

• The Tsy curve twist steepened on Tuesday, with benchmark yields running 1bp richer to 3bp cheaper across the curve, pivoting around the 3- to 5-Year zone.
• Soft data (flash S&P PMIs, new home sales and the Richmond Fed m’fing index) provided a bid for the space. This came after the major benchmarks cheapened through their respective Monday troughs, triggering some selling pressure as NY participants settled down to their desks.
• While there wasn’t much in the way of an overt driver apparent, desks flagged concession for this week’s Tsy auction cycle and payside flows in longer dated swaps as potential catalysts for the pre-data weakness.
• A weak 2-Year auction allowed the wider Tsy curve to move away from best levels, tailing by 1.4bp, with primary dealer takedown moving further above its recent average as the cover ratio softened below its own recent average.
• A block sale in UXY futures, as well as block buys in TU & FV futures, helped the general twist steepening trajectory in post-auction trade.
• A Q&A session with Minneapolis Fed President Kashkari (’23 voter) headlines the Asia-Pac docket. A reminder that Kashkari has stressed that the Fed needs to do what it can to tame inflation, while pushing back on the idea of rate cuts in ’23. Kashkari had been one of the more dovish regional Fed Presidents in a historical sense, but the inflationary pressures that the U.S. faces has altered that.
• Further out, Wednesday will see prelim durable goods data, pending home sales and MBA mortgage apps, in addition to 5-Year Tsy & 2-Year FRN supply.