Core FI Coils Overnight

The U.S. Tsy space traded in a confined manner overnight. T-Notes -0-00+ last at 132-12, while cash Tsys trade little changed to 1.0bp cheaper across the curve, with 20s providing the weak point on the curve ahead of today's Tsy auction covering that tenor. Several desks point to the need for further concession to allow smooth digestion of the auction, even after the recent cheapening on the 10-/20-/30-Year fly, with a slower recovery in liquidity vs. longer dated Tsys & the recent refinement of Fed purchases in that area of the curve cited. There has been nothing in the way of meaningful headlines, while the holiday in Hong Kong has removed liquidity from the Asia-Pac region. Flow has been dominated by a 10K block sale of the FVN1 124.00 calls.

• The latest 5-Year JGB auction was on the softer side, with the issues highlighted in our auction preview (namely a lack of pre-auction concession, little in the way of relative value and more desirable carry & roll propositions further out the curve) likely weighing on demand. The yield tail was steady and relatively narrow, although the cover ratio cratered back towards the levels seen at March's 5-Year auction. Elsewhere, the low and average prices that prevailed at auction missed broader dealer expectations for the low price (just). Futures are back from best levels but still in a contained range, last -1, while the belly has moved away from richest levels, unwinding its early outperformance vs. longer dated paper.
• The latest round of ACGB supply (in the form of A$1.2bn of ACGB Jun '31) wasn't the firmest, with the cover ratio on the softer side, albeit not as soft when adjusted for the size differential vs. the prev. auction, while the weighted average yield "only" printed 0.17bp through prevailing mids at the time of supply (per Yieldbroker prices). Still, no real reaction was seen in futures, which held to narrow ranges. YM -0.5, XM +1.0 on the day at typing.