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A very modest, early U.S. Tsy bid faded during Asia-Pac trade, T-Notes last -0-01 at 132-05, with the contract sticking within the confines of a 0-04 range. The contract had a brief and very shallow look below Wednesday's low overnight. The major cash Tsy benchmarks sit unchanged to ~0.5bp cheaper on the day. U.S. infrastructure matters dominated headline flow overnight. The bipartisan group of Senators meeting on the Hill negotiated a ~$559bn compromise framework re: the matter and will visit the White House to discuss the issue on Thursday. Note that the Dem. Party leadership hasn't formally backed the deal and need to give it the once over. On the flow side, TYQ1 129.00 puts were sold on block (-13,125) at 0-01.
- A reminder that T-Notes went out just above worst levels of the day on Wednesday as the major cash Tsy benchmarks cheapened by 2.0-3.0bp across the curve. Setup ahead of 5-Year supply applied some pressure as we moved through NY trade, unwinding a bid that came in on the back of the softer than expected new home sales reading. 5+-Year swap spreads widened by ~1.0-1.5bp on the day, applying some extra pressure to the space. In terms of auction specifics, 5-Year supply generated a 0.2bp tail, as the cover ratio eased backed to average levels, while dealer participation ticked back up in line with its own recent average. A 6.0K FVU1 block sale was seen shortly after the auction, although there was a 6.5K block buy of the same contract later in the day. On the options side a 9,999 lot block seller of the FVQ1 123.50 calls was seen ahead of the auction. Fedspeak was in line with exp., with Bostic, Kaplan & Rosengren reiterating their previously outlined stances (the first two names continued to position themselves at the hawkish end of the spectrum, which may have applied some modest weight to Tsys). In terms of fiscal matters, Tsy Sec Yellen urged Congress to raise or suspend the debt ceiling before August
- The German IFO survey & BoE monetary policy decision headline in Europe. Thursday's local docket sees the latest raft of Fedspeak (Williams, Bostic, Barkin, Harker, Bullard & Kaplan), the Fed stress test results, several data releases of note (headlined by the latest durable goods and weekly jobless claims data) and 7-Year Tsy supply.