A Touch Cheaper Overnight

Most of the Asia-Pac session's meaningful price action came around the cash Tsy re-open, and looked to be a result of the Asia-Pac region's reaction to Wednesday's comments from Fed Vice Chair Clarida on tapering/rate hikes and, to a lesser degree, the strong ISM services print out of the U.S. The contract last prints -0-04 at 134-22+, 0-01 off worst levels, on volume of ~83K. Cash Tsys sit 0.5-1.5bp cheaper as 5s lead the weakness. San Francisco Fed President Daly ('21 voter) reiterated her view re: the potential for tapering later this year/in early '22. A 7.0K screen seller of EDU3 provided the highlight on the flow side. Elsewhere, a 5.0K screen buyer of the FVU1 123.75 puts was seen.

• As a reminder, the cash Tsy curve saw some twist flattening on Wednesday, with the belly representing the weakest point as 5s cheapened by ~3.0bp, while 20+-Year paper saw some marginal richening come the bell.
• A much softer than expected ADP employment reading (+330K vs. exp. +683K) helped T-Notes through technical resistance and triggered the usual debate re: correlation with NFP readings, as participants questioned the degree of "substantial further progress" toward the Fed's goals.
• The space then pulled back from best levels of the session on a stronger than exp. ISM services survey (which logged a record rate of expansion) and comments from Fed Vice Chair Clarida, who noted upside risks to his inflation projection while flagging his expectations that conditions for a rate hike will be in place by the end of '22 while noting that a '23 rate liftoff is "consistent with framework." He also pointed to a tapering announcement at some point in '21, providing his baseline assumptions hold. The space tagged fresh intraday lows on the back of the ISM-Clarida combo, before recovering.
• Pre-NY focus will fall on the latest BoE decision, where the vote split surrounding the Bank's asset purchase facility and any comments on the sequencing review re: normalisation will be eyed. NY hours will be headlined by comments from Fed Governor Waller and Minneapolis Fed President Kashkari ('23 voter). We will also get the latest round of weekly jobless claims data.