Drifting Lower Ahead Of NFPs

T-Notes have seen some modest pressure overnight, with Thursday's cheapening impetus seemingly spilling over into Asia-Pac dealing given the lack of macro headline flow. This allowed the contract to move through Thursday's trough. Still the contract continues to operate within a fairly narrow 0-05 range, last -0-05 at 134-11, 0-01 off lows. Cash Tsys print ~0.5-1.5bp cheaper on the day, with some modest bear steepening in play. The most notable round of overnight flow has focused on the upside, with the TYU1 134.00/135.00 call spread lifted 10K times (5.0K outright, 5.0K covered).

• To recap, T-Notes went out at worst levels of the day on Thursday. The major cash Tsy benchmarks cheapened by ~2.0-5.0bp come the bell, with 5s leading the sell off. WN (+2,065) and FV (+11,500) futures blocks helped stall the sell off around the middle of the U.S. session, before T-Notes trickled back to lows into the bell. Fed Governor Waller pointed to a very high jobs print on Friday, reiterating his optimistic outlook re: the U.S. economy alongside upside risks to inflation. Later in the session Minneapolis Fed President Kashkari (Dove, '23 voter) once again touched on headwinds that the Delta COVID variant could pose for the labour market. In an interesting development Dem. Senator Manchin wrote a letter to Fed Chair Powell noting that "with the recession over and our strong economic recovery well underway, I am increasingly alarmed that the Fed continues to inject record amounts of stimulus into our economy." Worries surrounding inflation seemed to be at the core of his though process. Widening in long-end swap spreads was witnessed as the US$ corporate supply slate built, headlined by multi-tranche offerings from Amgen & Westlake.
• The monthly NFP print headlines the NY docket on Friday.