Narrow Asia Range After Tuesday's Modest Richening

T-Notes stuck to a tight 0-03 range during Asia-Pac hours, lacking any follow through above yesterday's best levels despite a brief and shallow look above, likely owing to a lack of tier 1 macro news flow (there was some attention on Sino-U.S. relations surrounding the passage of a U.S. naval ship through the Taiwan strait and subsequent rhetoric re: the matter from China, although this did nothing for broader markets). The contract last deals +0-01 at 132-12+, while cash Tsys observed some light twist steepening, as longer dated Tsys cheapened by ~1.0bp.

• The contract finished Tuesday's session just below best levels but stuck within the confines of Monday's range. The 3- to 5-Year sector of the curve led the rally, richening by ~3.5bp come the close. The long end saw some modest underperformance after struggling during the NY morning. Fedspeak from Chair Powell & NY Fed President Williams offered little new, bringing a more neutral to dovish tinge back to the fore after last week's hawkish FOMC read. Meanwhile, San Francisco Fed President Daly ('21 voter) suggested that conditions re: tapering may be in place in late '21/early '22, while playing down the need to discuss benchmark interest rate moves at present. Elsewhere, Cleveland Fed President Mester ('22 voter) stressed the Fed is not in a place where it needs to dial back accommodation, while pointing to September as a time when the Fed may have more clarity re: the attainment of its goals. The latest round of 2-Year supply generated a 0.5bp tail, with dealer takedown moving higher, back in line with the recent average, while the cover ratio nudged lower, once again moving in line with its own recent average. J.P.Morgan's latest weekly client survey showed its "fewest net shorts in a month, though the survey shows positions remain somewhat widely held." A reminder that this survey only covers the direction of client positioning, not the size. STIR flow dominated on the day and was headlined by a 100K screen seller of EDH1.
• Flash Eurozone & UK PMIs will likely set the tone ahead of NY hours. Fedspeak and 5-Year Tsy supply headline the domestic docket in NY hours. The infrastructure situation in DC will also garner attention.