Yields A Touch Lower, Late Asia Curve Blocks Seen Pre-Fed

Tsys trade two-way through the London handover, with impulses surrounding an apparent deal re: the German ’24 Budget and softer-than-expected UK GDP data noted.

• The German headlines initially applied modest weight, before the UK data provided a bid.
• The impetus from the bid then faded leaving TYH4 a little above the middle of a 0-06+ range, +0-02+ at 110-20.
• Cash Tsys are 0.5 to 2.0bp lower, with the wings outperforming at the margin.
• The previously flagged TU/FV steepener blocks (cumulative DV01 ~$500K, which desks suggested added to a similarly sized existing position on that curve) and TU/UXY flattener blocks (cumulative DV01 ~$240K) have highlighted on the flow side.
• The impending FOMC decision headlines today’s macro docket. Our full preview of that event can be found here.
• There no expectations for policy moves today. We have noted that while the updated projections will acknowledge scope for cuts in 2024 alongside lower inflation forecasts, the FOMC will likely attempt a modest pushback against the recent loosening of financial conditions. Meaningful changes to the Statement’s tightening bias are unlikely until least one or two more meetings from now, while Chair Powell is likely to warn that the FOMC is proceeding carefully and is prepared to tighten further if required
• Fed funds futures indicate ~110bp of cuts through ’24, with the first cut more-than-fully discounted come the end of the May FOMC.
• PPI and MBA mortgage apps data will cross pre-Fed.