No Let Up Overnight

Core fixed income markets cheapened during Asia-Pac hours, with spill over from Monday's U.S. Tsy trade and a continued uptick in crude oil futures applying weight to the space. T-Notes last trade -0-07+ at 131-18, at session lows, with bears now looking to the June 17 low (131-14). Cash Tsys run 1.0-3.0bp cheaper across the curve, with bear steepening in play. Asia-Pac flow was highlighted by a 2.5K block buy of FVZ1 futures, while the short end saw a relatively heavy round of screen lifts (~22K) in EDZ2. Both rounds of market activity came before the steepening impulse kicked in.

• To recap, cash Tsy trade saw cheapening across the curve on Monday, with circa 1.0-4.5bp of weakness witnessed come the bell, as 7s led the way lower. The space finished off of intraday cheaps, with a downtick for the S&P 500 perhaps limiting the weakness, while there was plenty of talk of convexity-related hedging when it came to a source of pressure for the space. Worst levels of the day came on the back of firmer than expected flash durable goods data. Monday's Fedspeak continued to greenlight a taper in the coming months, affirming the message at the centre of last week's FOMC decision and subsequent press conference, with the clear delineation between tapering and rate hikes remaining evident (although Brainard and Evans continue to fall on the dovish side of the central view). Meanwhile, Dallas Fed President Kaplan & Boston Fed President Rosengren noted that they will step down from their respective roles in light of their recent trading disclosures, although Rosengren's resignation pointed to health issues.
• 2-Year supply saw a 0.8bp tail with the cover ratio cratering and dealer takedown jumping above the recent average, a casualty of a truncated supply schedule/Fed policy views. 5s saw a warmer acceptance, stopping through WI by 0.4bp, with the cover ratio holding steady around the recent average, although dealer takedown ticked above its own recent average.
• Tuesday's docket is headlined by 7-Year supply, consumer confidence data, Fedspeak from Powell (accompanied by Tsy Sec Yellen, although transcripts have already been released), Bowman, Bostic & Evans, as well as the continued fiscal debate on the Hill.