2-Way Flow Overnight, Fed Gov. Waller Looks To Advance Taper Discussion

T-Notes squeezed to Asia-Pac session highs as China outlined a crackdown on auto chip sellers surrounding pricing matters, which came after worry surrounding a clampdown on the internet gaming sector in the wake of comments made by state-run media outlets earlier in the day (although the story on that matter was later removed). Dynamics in the Aussie bond space then pulled Tsys away from best levels. T-Notes -0-02 at 134-30 as a result, with cash Tsys little changed to 0.5bp cheaper across the curve. A 1,250 lot block buy of TYU1 (~$103K DV01 equivalent) headlined on the flow side.

• The long end led the richening on Monday, as yields there fell by 5.0bp, while T-Notes ended shy of best levels as key resistance at 135-07 remained intact, with the space edging back from best levels during the NY afternoon. Chinese growth worries, questions re: COVID vaccine matters, geopolitical tensions and soft ISM m'fing data provided the early bid.
• Late in the NY day Fed Governor Waller noted that if July & August see headline NFP numbers similar to June's ~850K then that would constitute "substantial progress" which could result in a taper "announcement in September." If the next two jobs reports aren't as strong as June's then Waller conceded that "you're probably going to have to push things back a couple months." He went on to note that in his view "with tapering we should go early and go fast in order to make sure we're in position to rate rates in 2022 if we have to…I'm not saying we would, but if we wanted to, we need to have some policy space by the end of the year." The comments place increased focus on Fed Vice Chair Clarida's next address, scheduled for Wednesday. Elsewhere, the Tsy marked its Q3 net borrowing estimate lower, pencilling in $673bn, down $148bn from the May estimate. 2x FV block sales headlined on the flow side, first 7.0K contracts were sold (~$359K DV01 equivalent), which was followed up by a 5.0K block seller (~$256K DV01 equivalent).
• Factory orders and final durable goods data will hit during Tuesday's NY session, while Fed Governor Bowman will give welcoming remarks at a Fed conference on low-income & marginalised workers.