TYM2 Incrementally Firmer At The Re-open

TYM2 nudges higher at the re-open, although the move is limited in the grander scheme of things, with the contract sitting a touch above late NY levels, +0-03+ at 121-26.

• To recap, cash Tsys twist flattened around the 7-Year point on Monday, with 3s leading the weakness, cheapening by ~6bp, while 30s provided the firmest point on the curve, richening by ~5bp. The 5-/-30-Year yield spread traded in and out of inversion territory (crossing below 0 for the first time since ’06), ultimately finishing around the -2bp mark.
• Softer oil prices took out some of the stagflationary fear evident in the market, with a two-stage lockdown in the Chinese city of Shanghai providing impetus for crude markets, facilitating some cheapening in U.S. Tsys during Asia-Pac hours. Elsewhere, decent payside swap interest, spill over from the JGB space, set up for a truncated Tsy supply schedule & the spill over from Friday’s NY trade/Friday’s fresh hawkish FOMC calls from the sell-side provided further pressure for Tsys & the Eurodollar strip during Asia-Pac trade. The space found a bit of a base in early London dealing, with subsequent cautious rhetoric for BoE Governor Bailey laying the ground for a bid to develop amid UK Gilt outperformance. An FVM2 block buyer (+11,692) also helped the bid in the late NY morning.
• The truncated issuance schedule saw 2s tail by 1bp, with a sub-average cover ratio and an uptick in dealer takedown, although the latter metric still held below its recent averages. 5-Year supply was better received, stopping through by 1bp with the cover ratio edging further above the 6-auction average, even as dealer takedown ticked higher.
• There isn’t much in the way of tier 1 risk events slated for Asia-Pac hours, while Tuesday’s NY docket includes consumer confidence & JOLTS job openings data, Fedspeak from NY Fed President Williams & Philly Fed President Harker (’23 voter) & 7-Year Tsy supply.