Japan Returns, 20-Year Tsy Supply Due Tuesday

T-Notes flat at the re-open, -0-01 at 133-07+. This comes after the contract went out a touch shy of best levels come the end of Monday's session. Cash Tsy trade saw bull flattening, with the longer end of the curve richening by ~5bp come the bell.

• Worry surrounding Chinese property developer Evergrande dominated on Monday, with equities trading lower as a result, providing further impetus to the resultant bid for the U.S. Tsy space. Longer dated swap spread tightening was observed, indicating that receiver side flows also aided the broader rally in rates. A reminder that the relatively opaque nature of the Evergrande situation, coupled with the sheer size of its debt, make the situation hard to assess, but a worry nonetheless. Several sell-side institutions have played down the chances of a Lehman-like event for China (after talk surrounding such an outcome in recent weeks), although they stress that any default/restructuring will need to be carefully managed. Equities moved off session lows, with Tsys back from intraday richest levels into the close.
• There isn't much in the way of tier 1 headline risk events slated for Asia-Pac hours, so it will be a case of watching markets in Hong Kong for broader cues (Chinese markets remain closed owing to a local holiday). 20-Year Tsy supply provides the focal point during Tuesday's NY session. Housing starts and building permits data will also cross in NY hours. Note that Japanese market participants and therefore cash Tsy trade will return for Tuesday's Asia-Pac session after the elongated Tokyo weekend.