​Still Firming

Tsys remain underpinned by the broader risk-off dynamic in the wake of the discovery of a new, aggressive COVID variant in Africa, with TYZ1 sitting at fresh session highs of 130-16 at typing, +0-21+ on the day. Cash Tsy trade sees continued outperformance in the belly, with 5s richening by ~8.5bp. This comes as some of the recent hawkish Fed repricing gets wound out of markets, as Eurodollar futures trade as much as 13.0 ticks higher on the day, with the reds outperforming. This dynamic has allowed the 2-/5-/10-Year butterfly to move back from recent highs (a reminder that the belly is the most susceptible part of the curve when it comes to Fed repricing and speculation surrounding tapering matters), while the 5-/30-Year spread has ticked away from the YtD, post-COVID vol. flats registered on Wednesday.