Cheaper Overnight, CPI Eyed

The path of least resistance resulted in cheapening during Asi-Pac hours, with a few separate bursts of selling pressure seen in Tsys, initially in futures trade, but also in cash dealing. While some pointed to set up ahead of CPI data and the usual flow-driven narrative given the lack of overt headline flow, one contact earmarked discussions surrounding redemption-based liquidations of accounts at large U.S. funds, although this wasn’t verifiable. Syndication-related pressure from the ACGB space may have also played a part in the weakness.

• TYM2 is -0-08+ at 119-15+, 0-04+ off the base of the contract’s 0-14+ overnight range (with the latter representing a fresh cycle low), on volume of ~160K. Cash Tsys run 2-4bp cheaper across the curve, with the space operating away from worst levels of Asia-Pac dealing. Note that 5+-Year paper managed to register fresh cycle highs in yield terms during Asia-Pac hours.
• Block trades dominated on the flow side in Asia, with a seller of TUM2 futures (-4.9K) and an existing TYK2 119.75 put position rolling down and out into the TYM2 118.50 puts (-20K/+20K) noted. Downside interest via screen lifts of the FVM2 111.25/110.25 & TYK2 118.50/117.50 put spreads was also observed during Asia trade.
• Looking ahead, CPI (see our full preview of that release here), average earnings data, NFIB small biz optimism, 10-Year Tsy supply & Fedspeak from Brainard will cross during NY hours. We will also see comments from President Biden, with indications that he will make announcements re: fighting inflation during his address (scheduled for 14:45 central).