RBC Look At The Backdrop For The Roll In Futures

RBC note that "there's normally a loose relationship between issuance and bond basis, but that doesn't seem to apply any more. Open interest in 10y futures has jumped with greater issuance, but 3yrs have struggled with YCC dampening volatility & activity. Rolls should shift marginally left from here if following usual patterns, which would make Dec basis look more attractive than at present. If it doesn't though, this will leave physical bonds looking quite unattractive for basket buyers, which could then ultimately send bond EFPs wider. We would prefer to wait for a move left in the roll and/or a widening in bond EFPs before putting on any long basket trades. Despite our earlier comments, Dec basket basis 2 weeks out from the Sep roll is actually quite comparable with recent contracts. The huge step up in issuance (normally a basis widener) clearly needs to be balanced against unprecedented RBA liquidity support measures, including the surprise expansion to the TFF announced on Tuesday. We don't have a formula to work out what happens when an unstoppable force meets an immovable object. Basket breakeven levels are just OK, nothing more, nothing less. Jun-31s are the only Dec 10y basket bond we like, while Nov-24 and Apr-25 look best in 3y. Keep clear of Nov-29s as they're next in line for removal from the 10y basket and can cheapen up more."