A Touch Firmer In Asia, Bid In Equities Limits Bid

U.S. Tsys garnered an early, modest bid in Asia-Pac trade, aided by Australia declaring a political boycott of the Beijing Winter Olympics & some cross-market spill over from strong ACGB supply. Reports that the UK is considering a work from home order over the Christmas period/greater chances of the government’s Plan B COVID containment strategy being implemented may have also supported the space. Still, firmer regional equities & e-minis tempered the bid (on hopes re: the severity of omicron and the Chinese policy easing dynamic). That leaves TYH2 +0-03+ at 130-14, off the peak of its 0-06+ overnight range. Cash Tsys run 0.5-1.5bp richer across the curve. We saw a block seller of FVH2 (-5K), in what was the third round of FV block selling observed during Asia-Pac hours in the week to date.

• To recap, the cash Tsy curve bear flattened on Tuesday, as 3s cheapened by ~6bp, providing the weak point on the curve, while 20s and 30s finished ~2bp & ~3bp cheaper, respectively. The front end led the cheapening into 3-Year Tsy supply, with firmer equities and continued notable $IG issuance adding broader pressure for a second consecutive day. In terms of auction specifics, 3s stopped through WI by 0.3bp, with the cover ratio firming vs. what was witnessed at the previous round of 3-Year supply (moving back in line with the 6-auction average), although dealer takedown moved higher, pushing above its own recent average. Fiscal matters were also in the mix, with the GOP and Democratic Senate leadership coming to a deal re: raising the debt limit. In terms of the broader picture, less worry re: the mortality risk posed by omicron and the prospect of further policy easing out of China ultimately outweighed worry re: U.S.-Russia relations, with a lack of progress noted when it came to the Biden-Putin call.
• Wednesday’s NY session will see 10-Year Tsy supply and the latest round of JOLTS jobs data.