Asia Assesses Monday’s Belly-Driven Weakness

A flat re-open for TYU2, with the contract last dealing -0-02+ at 116-23+.

• To recap, cash Tsys were 5-7bp cheaper come the close of Monday’s NY dealing, with the belly underperforming in the wake of a soft 5-Year auction and subsequent setup ahead of tomorrow’s round of 7-Year supply. That allowed TY futures to make fresh session lows after a morning recovery, although a couple of late block buys in FV futures (+12,635 & +7,000) helped the space find a bit of a base ahead of the bell.
• In terms of auction specifics, the aforementioned 5-Year auction tailed by over 3bp, with the cover ratio moving comfortably below the recent averages as dealer participation jumped above its own recent averages. This came after 2-Year supply generated a 0.7bp tail, with the cover ratio nudging lower and dealer participation once again pushing to levels that were comfortably above the recent averages. The recent richening from cycle cheaps and market vol. were deemed to be the 2 clear factors that deterred bidders. Some also pointed to the truncated holiday schedule and lightly staffed desks ahead of the Independence Day weekend.
• Local data saw firmer than expected pending home sales and durable goods prints (with the latter providing some pressure for Tsys in early NY trade), while the Dallas Fed m’fing survey was softer than expected.
• Equities gave back early gains, although a pull higher in crude markets provided a fresh source of weight for Tsys as we moved through the second half of NY dealing.
• The Asia-Pac docket is thin, with nothing in the way of tier 1 risk events on the slate. Looking ahead, Tuesday’s NY session will bring the release of trade balance data, various house price metrics, the consumer confidence reading and Richmond Fed m’fing index. We will also get the aforementioned round of 7-Year Tsy supply and Fedspeak from San Francisco Fed president Daly (’24 voter).