A Touch Flatter In Asia

T-Notes operated in a narrow (0-04+) range in Asia, drawing very modest support from the downtick in e-minis. The latter sit 0.3-0.6% lower, on the back of the latest North Korean missile launch and another round of weakness in Chinese equities (driven by further regulatory oversight on the tech sphere). TYH2 last +0-05 at 129-14. Cash Tsys run little changed to ~2bp richer, with 30s outperforming. Broader headline and market flow remains fairly limited. NY hours will see the release of ADP employment data and the minutes from the FOMC’s December meeting. Re: the latter, markets will be looking for any discussion on how soon the central bank may hike rates after the tapering process is concluded and further details surrounding balance sheet normalisation.

• To recap, twist steepening was the name of the game on Tuesday, with 2s ~1bp richer come the bell, while 30s were ~4bp cheaper. Note that 5s represented the pivot point, finishing at virtually unchanged levels. January’s traditional brisk $IG issuance continued, weighing on the longer end, while a sizeable block sale of WN futures (-2.5K) added further pressure to the longer end during the latter part of the NY morning. Debate around the timing/pace of Fed balance sheet shrinkage (which some suggested could limit the need for a more aggressive round of rate hikes) aided the twist steepening of the curve, supporting the shorter end. ISM m’fing data was softer than expected, with the expansion witnessed in the prices paid component slowing (although remaining comfortably above 60).
• NY hours will see the release of ADP employment data and the minutes from the FOMC’s December meeting. Re: the latter, markets will be looking for any discussion on how soon the central bank may hike rates after the tapering process is concluded and further details surrounding balance sheet normalisation.