Asia Holidays To Continue To Limit Liquidity After Monday’s Cheapening

TYM2 operates around late NY levels, +0-03 at 118-14, 0-07 off Monday’s range base.

• To recap, the major cash Tsy benchmarks softened on Monday, finishing 2-5bp cheaper across the curve, with 7s leading the way lower. A lack of liquidity in Asia (owing to widespread holidays) and European (with London out) hours limited activity before NY participants joined the fray. US$ IG issuance and impending event risk (namely Wednesday’s FOMC decision) applied pressure during NY hours after a flash crash in Scandinavian equities (with a large Wall St. bank flagged as the driver of the move) and focus on soft Chinese PMI data helped provide some light support for futures during the European morning (when cash Tsys were closed owing to the London holiday). A recovery in equity markets was observed into the NY close, with block sales of FV (-7,932) and TY (-5,500) futures seen late in the NY session. Still the space managed to finish back from intraday cheaps after 10-Year yields failed to establish themselves above 3.00% following a brief and shallow look above the psychological level for the first time since late ’18. Note that 10-Year real yields registered a fresh cycle high, closing comfortably above 0%, a first close in positive territory during the current cycle. This came as nominal yields moved higher and 10-Year breakevens narrowed by ~10bp. Wider volume was subdued owing to the aforementioned holidays.
• On the data front, the latest ISM m’fing survey was softer than expected, with the prices paid sub-index still comfortably above 80 (if a touch shy of estimates), while the new orders and employment metrics disappointed.
• The RBA decision headlines the Asia-Pac docket on Tuesday. Note that the MNI markets team leans towards the wider consensus view of a 15bp rate hike come the end of today’s RBA meeting. Holidays in Japan, Singapore and China will limit wider liquidity in the timezone, with the Japanese holiday meaning cash Tsys are closed until London hours.
• Wednesday’s NY docket will see the release of factory orders, final durable goods readings and JOLTS job openings.