Covid Surge Underpins Short End, Stocks Under Pressure

Tsys trading mostly weaker on moderate volumes after Monday's close, well off Asia/London crossover highs. Tsy 2s-5s outperformed while 10s-30s see-sawed to weaker levels/session lows by the close. Main drivers on day: concerns over measures to contain covid surge, and knock-on effect of Sen Manchin torpedoing Pres Biden's $2T BBB spending plan.

• Trading desks reported better real$ selling of long end Tsys during Asia hours, two-way with misc sellers in the belly on surprisingly robust volumes ahead the holiday. Volume surged around the Asia/London crossover included steepener Block package: 5s and 10s vs 30s at 0212:42ET.
• Bonds extended session lows (30YY 1.8545% high), equities holding weaker (ESH2 -65.0 at 4545.0 late vs. 4520.75 low), decoupling again after brief period negative correlation late last week. 5s30s back to Nov 30 levels, tapped 70.24.
• Trading desks reporting two-way flow in short end with leveraged fund buying vs. foreign real$ selling 2s, leveraged$ selling 5s, real$ selling 20s ($20B 20Y Bond sale Tuesday, 912810TC2). Sporadic flattener unwinds 2s10s, 5s and 10s vs. 30s.
• The 2-Yr yield is down 1.2bps at 0.6256%, 5-Yr is down 1.6bps at 1.1586%, 10-Yr is up 1.2bps at 1.414%, and 30-Yr is up 3.7bps at 1.8436%.