US TSYS: Cash Bonds Slightly Cheaper Ahead Of FOMC Decision

• Tsys futures are trading slightly lower today, largely just seen as profit taking after a rally on Friday, while there is no cash trading today with the US out for President's Day. Volumes are not surprisingly well below recent averages, while we remain trading within Friday's ranges. TU is -00⅝ at 102-23¾, TY is -03+ at 109-06+
• 10yr Treasury futures have recovered from Wednesday's low, rising back above the 50-day EMA in the process. Recent weakness resulted in a break of 108-20+, the Feb 4 low. The breach highlights a stronger reversal and most likely the end of the corrective cycle between Jan 13 - Feb 7. A continuation lower would open 108-00, the Jan 16 low, and expose 107-06, the Jan 13 low and bear trigger. Key resistance and the bull trigger is 110-00, Feb 7 high.
• Following the few busy sessions for key economic data last week, fed funds futures are still only pricing in a single 25bps cut this year, currently expected at the September meeting, although pricing has firmed throughout the past week with about a 60% chance the cut will come in June.

NZGBs closed 2-3bps cheaper but at the session’s worst levels. 

• Outside of the previously outlined NZ PSI and Migration data, there hasn't been much by way of domestic drivers to flag.
• The NZ-AU 10-year yield differential closed unchanged at +9bps. It has traded in a -10bps to +20bps since October.
• Cash US tsys are closed for the Presidents Day holiday.  TYH4 is slightly weaker.
• Swap rates closed 3-4bps higher.
• RBNZ dated OIS pricing is flat to 5bps firmer across meetings today, ahead of the RBNZ Policy Decision on Wednesday.
• The RBNZ decision is widely expected to cut rates 50bp again to 3.75%. Revised staff forecasts will also be published.
• All 22 analysts surveyed by Bloomberg are forecasting a 50bp rate cut and the RBNZ shadow board is recommending 50bp of easing.
• Notably, OIS pricing is 2–19bps firmer than pre-Q4 Labour Market data levels from February 4.
• Nevertheless, 49bps of easing is priced for Wednesday, with a cumulative 111bps by November 2025.
• Tomorrow, the local calendar is empty.
• On Thursday, the NZ Treasury plans to sell NZ$250mn of the 4.50% Apr-27 bond, NZ$200mn of the 4.25% May-34 bond and NZ$50mn of the 1.75% May-41 bond.

Yen remains the clear outperformed in the G10 space, the pair last near 151.55/60, close to to session lows (151.51). The yen is up 0.50%, with NZD the next best performer up close to 0.25%. For USD/JPY techs, downside focus will remain on recent lows of 150.93 (recorded on Feb 7).  

• The earlier Q4 GDP beat was a clear yen positive, although after underperforming last week's G10 move against the USD, there is still room to play catch up.
• A further BOJ rate hike is arguably not priced in until the Sep meeting, although the end July meeting is close to full priced.
• On the data front we get the Jan national CPI this Friday. Note on Wednesday BoJ board member Takata speaks in Miyagi.  
• FX options volumes are large at this stage, under $1bn, with higher volumes in USD/CNY per DTCC. The 1 month risk reversal is off recent highs at -1.205 is still above earlier Feb lows (-1.69).
• Versus current spot, the largest expiring strikes for the coming week are center at 154.00 (just over $5bn), with close to 1.7bn at 152 and 154. 149.00 has $1.2bn worth of option expiries for the coming week.
• Futures volumes have ticked up but look normal for this time of day.