Supported By Chinese Regulatory Crackdowns

A defensive start to the week for Chinese & Hong Kong equity indices weighed on broader risk appetite, with fears of increased regulatory burden/scrutiny from the Chinese authorities evident in the wake of the crackdown on the education sector, while deeper scrutiny surrounding broader internet based activities also became apparent. This has allowed the U.S. Tsy space to firm, with T-Notes +0-06+ at 134-11, on a mere 68K lots of volume on the day, while cash Tsys print 0.5-2.0bp richer across the curve, as 10s outperform. The opening salvos at the latest meeting between senior U.S. & Chinese officials weren't particularly warm (as was foretold).

• As a reminder, the major cash Tsy benchmarks finished Friday's session little changed to ~1.0bp richer, while the widening in breakevens drove our weighted U.S. real yield metric to fresh all-time lows. Broader price action was limited with the impending event risk and lack of a catalyst (as well as a Japanese holiday thinning volume in Asia) weighing on activity. Outside of the ongoing infrastructure saga, comments on the debt ceiling garnered some interest, with U.S. Tsy Sec Yellen noting that "if Congress has not acted to suspend or increase the debt limit by Monday, August 2, 2021, Treasury will need to start taking certain additional extraordinary measures in order to prevent the United States from defaulting on its obligations." Flow was dominated by 2x block buys of UXY futures during NY hours (+5.0K and +3.9K).
• New home sales & Dallas Fed m'fing activity data headline the local docket during NY hours on Monday, although participants are clearly focused on the upcoming FOMC decision (Wednesday) and advance Q2 GDP reading (Thursday). 2-Year Tsy supply is also due on Monday.