Twisting A Little Steeper

Some light cash Tsy demand around the Asia-Pac re-open, coupled with a downtick in Chinese equites & e-minis supported Tsys during Asia-Pac dealing, although the space is back from firmest levels of the session ahead of London hours, with e-minis off lows. TYM2 last deals -0-01+ at 118-26, 0-04 off the tip of its 0-09+ overnight range, with volume just above 90K. Cash Tsys have twist steepened, with the major benchmarks running 2bp richer (led by 2s) to 0.5bp cheaper (20s & 30s). Note that the long end lagged the front end in the early rally.

• For some background, Chinese tech stocks faltered after yesterday’s rally, with caution surrounding Tencent’s impending earnings release and some concerns re: the lack of concrete assurances re: lower regulatory burden for the space in the wake of yesterday’s high level Chinese policymaker-tech executive meeting weighing. Headline index moves were relatively modest in the wider scheme of things, with the Hang Seng and CSI 300 trading down a mere 0.6% at typing. Questions surrounding the spread of COVID in the Chinese cities of Beijing, Tianjin & Sichuan still remain evident, even as the situation in Shanghai improves.
• A light, data related bid in the ACGB space provided further support to Tsys half way through Asia trade.
• Chicago Fed President Evans spoke overnight, generally underpinning the broader view of the FOMC. Post-address remarks with reporters saw Evans note that rates may have to go beyond neutral, although such a dynamic makes him nervous. As a result, he highlighted his support for moving to a shallower rate-hike path by September to allow the Fed time to assess inflation dynamics and the impact of already implemented tightening on the labour market.
• Flow was headlined by two block buys of TUM2 futures (+5.5K apiece), which underscored the outperformance of the front end of the Tsy curve.
• Wednesday’s NY session will bring the release of housing starts & building permits data, 20-Year Tsy supply and Fedspeak from Philly Fed President Harker.