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T-Notes unchanged at 132-00+ after rallying from Asia-Pac lows on Thursday to close just shy of best levels, paring roughly 50% of their post-FOMC decline.

  • The cash Tsy curve twist flattened on Thursday, with 2s and 3s cheapening by 0.5 and 2.0bp respectively, while 30s led the richening, shedding ~11.5bp on the day come the close. As an aside, the 2-day flattening witnessed on the 5-/30-Year curve across Wednesday & Thursday is the most aggressive round of flattening witnessed over a 2-day period since the depths of the COVID crisis in Mar '20. That particular spread also tagged levels not seen since November during Thursday's NY session.
  • Reflation trades were on the defensive with some notable sell-side names closing steepener recommendations. Breakevens were under heavy narrowing pressure into 5-Year TIPS supply, before the auction drew solid demand, stopping through WI by ~2.0bp as dealer takedown slid and the cover ratio ticked back towards average levels. This led to a recovery in breakevens from intraday narrows, with short dated breakevens ending little changed while 10+-Year breakevens narrowed by 2.0-4.0bp on the day.
  • A reminder that the latest J.P.Morgan Tsy client survey flagged the largest short positioning in the space seen since late '17 (note this only covers the direction of client positioning, not the outright size of their positions), so that could have played into Thursday's move after the initial round of post-FOMC weakness on Wednesday.
  • Thursday's Tsy flow was dominated by a 10K block buyer of the TYQ1 131.50 straddles, along with a block buyer of TY futures (+5,291) & block seller of UXY futures (-4,500).
  • The latest monetary policy decision from the BoJ headlines the regional economic docket in Asia-Pac hours, although there are no expectations for anything in the way of meaningful tweaks. There is nothing in the way of matters to eye on the local docket on Friday, and we should flag that SIFMA has noted that "as June 19, 2021 falls on a Saturday, Fedwire remains open - SIFMA therefore will not recommend a close for fixed income markets. Going forward, Juneteenth will be incorporated into our holiday schedule."