Limited China ZCS Bid Observed Early This Week

Tsy futures print higher at the re-open before ticking away from best levels, with all of the major contracts failing to challenge their respective Friday peaks.

• The previously alluded to weekend commentary from Chinese health officials re: the COVID situation in the country (steadfast support for the current zero COVID strategy) dominated weekend news flow and is the main driver for price action early this week.
• However, source reports from the WSJ (among other outlets), noting that “President Biden’s top national-security adviser has engaged in recent months in confidential conversations with top aides to Russian President Vladimir Putin in an effort to reduce the risk of a broader conflict over Ukraine and warn Moscow against using nuclear or other weapons of mass destruction” may be limiting the China-inspired move.
• To recap, Friday saw Tsy finish 5.5bp richer to 6.5bp cheaper across the curve, twist steepening, pivoting around the 10-Year zone.
• Chinese COIVD rumours, Fedspeak (some of which was a little more dovish than Chair Powell’s post-meeting press conference) & the NFP report (including a headline beat, in line AHE & a larger than expected uptick in unemployment) fed into price action ahead of the weekend.
• The 2-/10-Year spread once again registered fresh deepest levels of inversion for the current cycle, before pulling away from extremes, seemingly aided by some sell side names recommending flattener unwinds across various curves.
• Fallout from the weekend headline flow and Chinese trade data are set to headline during Asia-Pac hours. Further out, Monday’s NY docket includes Fedspeak from Mester, Collins and Barkin (although comes in the latter rounds of NY trade and the NY-Asia crossover).