Firmer Overnight, Mid-Month Supply Set To Dominate

Early modest cheapening in core FI markets unwound as circular drivers came to the fore during the early round of Asia-Pac trade. Asia-Pac $ IG bonds were under widening pressure and regional tech proxies in the equity space were sold heavily again, resulting in the DXY testing resistance and a solid bid in core global FI. Pressure was alleviated as Chinese equities rallied sharply from lows, resulting in desks and then major newswires suggesting that the Chinese "national team" had stepped in to quell the recent losses in the domestic equity markets. Still, broader core fixed income markets remained underpinned, even as regional equity indices recovered from worst levels.

• This allowed Tsys to bull flatten, with 30s sitting ~3.0bp firmer on the day, while T-Notes print +0-05 at 132-01, 0-02+ off best levels. In terms of market flow we saw the following:
• TYJ1 134.00 puts saw 1,875 lots sold on block, likely profit taking based on previously identified regional trading patterns.
• A FV/TY flattener (-7,435 lots vs. +4,825 lots)
• TYJ1 130.00 puts saw a 5,625 lot block buyer.
• As a reminder, the space was subjected to a much calmer round of trade on Monday, with the belly seeing some underperformance as 5s cheapened by ~5.5bp on the day. Tsy Secretary Yellen re-flagged her support for sizeable fiscal stimulus and reiterated the notion that there are tools to deal with inflation if it surfaces, stressing that she doesn't expect that undesirable levels of inflation will materialise. A busy IG issuance slate was also noted. Some steepening pressure was seen late in the day on the back of a misweighted UXYM1/WNM1 block steepener (+3,500 vs. -5,410).
• Focus on the Treasury's mid-month auction schedule is evident. 3-Year supply gets things rolling today, which comes in the wake of an extremely poor 7-Year auction at the backend of February (which resulted in the well documented volatility witnessed on 25 Feb).