Heavy Start In Holiday Thinned Trade

T-Notes extend through their late Friday lows at the re-open, with the contract dealing -0-06+ at 136-11 early on. Positive developments re: COVID case trends in the U.S. are probably helping here, turnover is well above average for this time of day, which is impressive given the widespread holidays in play, as regional participants react to Friday's market developments.

• The space was subjected to bear steepening pressure on Friday, with 30s going out ~6.5bp cheaper on the day and longer dated breakevens widening by over 2.0bp as oil price dynamics and an uptick in inflation expectations in the latest UoM sentiment survey stood at the fore. The broader risk-on theme and incremental positive news flow re: the U.S. vaccine supply story may have also fed into Tsy trade. The weakness resulted in U.S. 10s and 30s tagging fresh cycle highs in yield terms, with the respective benchmarks closing above 1.20% and 2.00%. Still, options flow saw some interest for upside protection (price wise), with buying of the TYJ1 137.00/137.50 call spread and TYM1 137.50 calls seen.
• Friday also saw U.S. Tsy Sec Yellen pressing G7 FinMins & central bank govs to "go big" with fiscal support, while she stressed that the Biden administration will undertake a policy of "international engagement."
• There is little in the way of headline risk events scheduled for Asia-Pac hours and market liquidity is set to be thinned by the ongoing Lunar New Year holiday period, further compounded by the U.S. observing the Presidents Day holiday on Monday, which means that cash Tsys will be closed until Tuesday's Asia-Pac session.