A Touch Firmer In Asia

The very light overnight bid in U.S. Tsys has been driven by the front end of the curve, with the belly leading, richening by ~1.5bp on the session, while the longer end of the curve is little changed on the day. The only round of major macro headline flow has centred on the Chinese liquidity situation, which saw the PBoC inject CNY1tn of MLF, matching the amount of MLF that was set to roll off in November (this may have supported broader core global FI). TYZ1 last +0-07+ at 130-24+. The space also looked through the latest round of Chinese economic activity data (which was firmer than exp.).

• To recap, the cash Tsy curve twist steepened on Friday, with 2s and 3s registering some marginal richening (sub-1bp), while 30s cheapened by ~3bp on the day. Weak UoM sentiment data provided a leg of support to the space in NY hours, although 30-Year yields made fresh session highs, with pressure across the curve coming back in as we ground through the day (aided by widening breakevens), although Tsys out to 10s failed to move beyond their early European cheaps. The general twist steepening of the curve was reportedly aided by flattener unwinds and demand for the belly of the curve on various butterfly structures. Flattening flow in several Eurodollar futures spreads (EDZ1/Z3, EDU2/Z2 and EDZ1/H2) was also observed. Note that the actioning of the Fed's already announced tapering move was formally outlined by the NY Fed, although the purchase plan covering the 10- to 22.5-Year zone was left unchanged.
• Empire manufacturing data presents the highlight of a very limited domestic docket on Monday. Focus is already on the late Monday call between U.S. President Biden & Chinese counterpart Xi, although a White House official has told CNBC that the meeting "is about setting the terms of an effective competition where we are in the position to defend our values and interests and those of our allies and partners." As a result, most see little room for any real positive developments.