Core FI Cheapens Again

Core fixed income markets cheapened during Asia-Pac hours, with spill over from Monday's U.S. Tsy trade and a continued uptick in crude oil futures applying weight to the space. T-Notes last trade -0-06+ at 131-19, just above session lows, with bears now looking to the June 17 low (131-14). Cash Tsys run 1.0-25bp cheaper across the curve, with bear steepening in play. Asia-Pac flow was highlighted by a 2.5K block buy of FVZ1 futures, while the short end saw a relatively heavy round of screen lifts (~22K) in EDZ2. Both rounds of market activity came before the steepening impulse kicked in. Tuesday's docket is headlined by 7-Year Tsy supply, consumer confidence data, Fedspeak from Powell (accompanied by Tsy Sec Yellen, although transcripts have already been released), Bowman, Bostic & Evans, as well as the continued fiscal debate on the Hill.

• JGB futures have moved through technical support to last trade -21 on the day, with bears now switching focus to the April 1 low. Bloated dealer books and worries surrounding the external bond environment may have hindered today's 40-Year JGB supply, with the cover ratio sliding to the lowest witnessed at a 40-Year auction since 2015, while the pricing side wasn't anywhere near as soft, as the high yield met broader dealer expectations (as proxied by the BBG dealer poll). Cash JGB trade has seen twist steepening, with 7s (based on the move in futures) and 40s (on the supply dynamic) providing the weak points on the curve.
• The uptick in oil/weakness in U.S. Tsys seemingly continues to drive price action in Aussie bonds, leaving YM -3.5 and XM -5.0 at typing. XM bears are now looking to the July 6 low (98.495), with any break there set to expose the June 17 low (98.320). The latest round of weakness in the space also triggered some selling of IRZ1.