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T-Notes stable at the re-open, with the contract last -0-00+ at 132-13, in line with late NY levels. As a reminder, Tuesday saw the cash curve bull flatten, with 30s richening by a little over 2.0bp come the bell.

  • U.S. Tsy Sec. (and ex-FOMC Chair) Yellen stole the headlines on Tuesday. Comments late in the day underlined the idea that she does not foresee an "inflation problem," but noted that if one were to appear then the Fed would address the matter. She also flagged transitory price pressures over the next "6 months or so." Yellen was keen to stress her strong belief in Fed independence and highlighted that she is not predicting/recommending a rate hike from the Fed. She also reiterated the idea that she expects full employment in '22. This came in the wake of her comments made earlier in NY hours re: the potential need for the Fed to hike rates if the economy overheats. We would suggest that those initial comments in isolation didn't provide anything new, having featured in Yellen's commentary in recent months e.g. the Fed has the tools to deal with inflation if it becomes an issue.
  • The initial round of comments from Yellen saw the space back from richest levels of the day, after some early NY risk-off price action, which many struggled to frame with a narrative (some pointed to Chinese aircraft incursions into China's ADIZ, but this can't be considered a surprise given the recent run of such events). The early NY afternoon saw over 100K TYM1 change hands in a ~1-minute window, which provided a brief burst of support, although the move once again lacked an overt catalyst. On the flow side, an 8.4K block buy of TYM1 helped the broader bid during the NY morning.
  • There is nothing in the way of headline global tier 1 risk events slated for Asia-Pac hours, with the final day of the Japanese & Chinese holidays set limit liquidity in the timezone (with the former keeping cash Tsys closed until London hours).