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Trend Needle Points South


Fed Terminal Up To 5.06% in June 2023


Heading North


Late Dec/Mar Tsy Roll Level Update

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Twisting Flatter


The post-CPI twist flattening of the curve spilled over into Asia-Pac trade, with the major cash Tsy benchmarks running 4bp cheaper to 0.5bp richer, pivoting around 20s, as the wings of the curve reflect the respective extremes.

  • Hawkish Fedspeak from Mester (’22 voter) added to that particular dynamic, as she noted there was no trade off when it comes to fighting inflation, while stressing that July’s monetary policy decision “doesn’t have to be made today” and flagging the upcoming retail sales data and inflation expectations component of the UoM sentiment survey as key inputs for the July decision. She didn’t directly answer a question re: the potential for a 100bp hike but noted that the step should be as least as large as the 75bp hike deployed last time out. Elsewhere, Fed’s Daly (’24 voter) flagged her current preference for a 75bp hike but noted that a 100bp move is within the scope of the potential outcomes re: the July meeting.
  • Trade during the first half of the session was two-way, with a bid to best levels quickly unwound, then extending on the back of spill over from ACGBs on the back of a firmer than expected Australian labour market report. That cheapening move then consolidated during the second half of the session, with TYU2 last dealing -0-13 at 118-16+, 0-02 off the base of its 0-15+ Asia range, although volume is subdued, running just above 90K.
  • A quick reminder that various curve inversion measures have registered fresh cycle extremes post-CPI, including the 2-/10-Year yield spread, EDZ2/H3, EDZ2/Z3 & EDZ2/Z4. Note that Fed Chair Powell’s preferred measure, the 3-month/3-month 18 months forward spread, now sits around the 65bp mark, after flattening by ~150bp over the last month.
  • Various FV option blocks headlined on the flow side in Asia.
  • PPI & weekly jobless claims data is due today, as is Fedspeak from Governor Waller.
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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