Japanese Holiday Limits Market After Friday's Flattening

Core FI markets continue to operate in narrow ranges given the lack of meaningful macro headline flow evident since the re-open and the Japanese market holiday, looking through a more active Asia-Pac session for the FX space, in which the broader USD has ticked lower. On the news front, generally upbeat Brexit mood music, solid South Korean trade data and focus on the more upbeat vaccine news (with the potential for another positive development on that front in the coming days, via the AstraZeneca trial) headlined over the weekend. T-Notes +0-00+ at 138-16+ on sub-par volume, within a 0-02+ range.

• To recap, long end outperformance was the name of the game on Friday, as the curve twist flattened, with some focus on the heightened potential for the Fed to alter its monetary policy easing methods before year end in the wake of the Treasury's request for the Fed to return unused funds from its support schemes (which was ultimately granted after the Fed voiced its displeasure at the move late on Thursday). Fed's Evans noted that "we are in a pretty good place at the moment to see how everything is going to play out…We obviously could do more with enhanced asset purchasing." He stressed that the methods that have already been adopted by the Fed provide "a tremendous amount" of support to the economy, although reiterated that the program could be further enhanced, if needed. This could take the form of extending the maturity of asset purchases/buying more, although he suggested that that Spring would provide a better idea of what was required. A TY/WN steepener provided some counter to the broader flattening impetus.
• Japan observes a holiday on Monday, so cash Tsys will remain closed until London hours. NY hours will bring the flash PMI readings, in addition to Chicago Fed activity data. A heavy supply schedule will see the Tsy auction 3-Month, 6-Month, 2-Year & 5-Year paper on Monday, while Fedspeak will come from Evans, Daly & Barkin.