Off Best Levels, Biden-Xi Summit Leaves Broader Status Quo In Place

The light bid in U.S. Tsys that was apparent ahead of the Xi-Biden phone call faded from extremes, with the opening salvos ahead of the call seemingly a little bit more open vs. some expectations. While the meeting itself failed to herald any meaningful progress re: Sino-U.S. relations (as was exp.), the lack of overt conflict re: matters such as Taiwan meant that the call avoided the worst-case scenario for risk assets. TYZ1 +0-04+ at 130-14, back from session highs of 130-17, as cash Tsys run flat to 2bp richer across the curve, with 10s outperforming. Flow was headlined by a 5K screen buyer of the TYZ1 130.00 puts.

• To recap, the cash Tsy curve was subjected to bear steepening pressure on Monday, as the early, light bid evaporated. 2s were little changed and 30s ~7bp cheaper come the bell. Potential factors weighing on the space on the day included a firmer than expected round of Empire m'fing data, which saw all of the major price components firm, while former NY Fed President Dudley & ex-Richmond Fed President Lacker suggested that the central bank will probably have to raise its target for the federal funds rate to at least 3% (on BBG TV). A swelling corporate issuance slate also added some weight to the space as we moved through the day. Elsewhere, current Richmond Fed President Barkin noted that it could take a minimum of several months for the Fed to understand if high inflation & labour shortages will eventually ease or become stickier. We also saw Minneapolis Fed President Kashkari underscore his credentials as the Fed's uber-dove, as he pointed to a need to consider the Fed's dual mandate and not just react to temporary factors supporting inflation.
• Tuesday's domestic docket is retail sales-centric, with industrial production, business inventories & NAHB housing data also due. Tuesday will also bring a deluge of Fedspeak, with Bullard, Barkin, Bostic, George & Daly all set to make addresses.