TYZ1 Through Support As Fed's Bostic Flags Potential For Faster Taper

Comments from Atlanta Fed President Bostic ('21 FOMC voter) hit during the NY-Asia crossover. Bostic pointed to the potential for a faster tapering process (the latest Fed official to sing from that hymn sheet), which he noted would afford the central bank wider optionality. Still, Bostic flagged that further progress on the labour market front would add to the case for a faster taper, while highlighting the lingering risks stemming from COVID. Bostic's comments seemingly applied some delayed pressure to Tsy futures, although the lack of cash Tsy trade until London hours, owing to a Japanese holiday, may have limited broader activity/the scope of the move. TYZ1 last -0-04+ at 129-27+, 0-02 off the lower boundary of its 0-07 overnight range, with the pressure pushing the contract through the bear trigger (Oct 21 low of 129-31), which allows bears to switch focus to the 50% retracement of the Oct '18 to Mar '20 bull cycle (129-03). Broader macro headline flow was light at best.

• To recap, the reappointment of Fed Chair Powell for a second term atop the central bank provided the more hawkish potential outcome (at least in terms of market perception vs. the alternative of Governor Lael Brainard, who was nominated as Vice Chair to succeed Clarida), which weighed on Tsys on Monday. The major cash Tsy benchmarks were 5-10bp cheaper come the close, with the belly leading the sell off, while the long end outperformed on the day, driving the 5-/30-Year yield spread to within touching distance of the YtD flats. The Eurodollar strip also sold off aggressively. A bid in the broader dollar ensued, while firmer than expected existing home sales data was observed. This environment resulted in ~1bp tails at both the 2- & 5-Year auctions, with the cover ratios sliding lower (below their recent averages), while dealer participation moved above the recent averages, providing a further source of pressure for the space. Futures roll activity supported broader volume.
• Flash PMIs from across the globe will headline ahead of NY hours, while the Thanksgiving-related front-loaded supply will continue, with 7-Year Tsy & 2-Year FRN auctions slated.