Firmer & Flatter In Asia

Core FI markets moved away from worst levels in Asia-Pac hours, with bears unable to force a meaningful extension of the recent weakness. There wasn’t much in the way of notable macro news flow.

• The more notable market flows tried to fade the Asia-Pac uptick in the Tsy space, with a couple of 2K+ screen sellers of TYH2 futures hitting, while 10K of block lifts in TYJ2 126.00 puts headlined broader overnight flow. TYH2 last +0-03+ at 126-22, 0-01 off session highs, while cash Tsys run 1-3bp richer across the curve, with bull flattening in play. Note that TYH2 briefly showed through Tuesday’s cycle low at the re-open.
• To recap, cash Tsys finished 4-5bp cheaper on Tuesday, with the front end leading the way lower, resulting in some modest bear flattening of the curve. NY trade was fairly limited, with a chunk of the weakness seen in Asia as some pointed to convexity hedging-like flows in swaps. Some have also suggested that Japanese repatriation flows have provided s source of pressure for U.S. Tsys during Tokyo trade on Monday & Tuesday. Broader core FI weakness kept a lid on the space at different points in the day, as did the eventual uptick in U.S. equities. 3-Year Tsy supply stopped through by 0.3bp, with primary dealer takedown tumbling to a record low, while the cover ratio hovered around the recent average witnessed at 3-Year auctions.
• Looking ahead, Wednesday’s NY docket is headlined by Fedspeak from Bowman & Mester, in addition to 10-Year Tsy supply.