Tight Again In Asia

T-Notes meandered along in a narrow 0-02 range overnight, last -0-02 at 132-27, with cash Tsys trading unchanged to ~0.5bp cheaper across the curve. There has been a lack of meaningful macro headlines. Details surrounding the high-level Sino-U.S. phone call (involving the senior trade negotiators on both sides) were sparse, although the dialogue was deemed constructive and candid, as both parties expressed the importance of their bilateral relationship, although differences clearly remain. Flow was headlined by a 5K block seller of the FVN1 124.00 calls at 0-13+.

• To recap, Wednesday represented a narrow day for T-Notes, with the contract working back towards early European lows during the second half of NY trade. It was another news flow light session, with the 10-Year point of the cash curve leading the way lower, cheapening by ~2.0bp on the day. The latest round of 5-Year supply was firm, stopping through WI by 0.6bp, as the cover ratio pushed comfortably above the recent averages and dealer takedown slid further below its own recent averages. Some suggested that desks used the auction to set fresh steepening positions i.e. long the belly vs. shorts further out the curve, given post-auction price action. A 4,033 block sale of UXYU1 also fed into that narrative, applying some weight to the longer end of the curve. USM1/U1 roll activity caught the eye, with trades corrected by CME (the roll ran up from 1-18 to as high as ~2-25 in quick order, before all trades that were conducted above 1-26.25 were adjusted back to that level). Elsewhere, early NY dealing saw the front end of the Eurodollar futures strip supported as Bank of America noted that they are now "less convinced of steeper Sept-Dec FRA-OIS and expect Mar '22 FRA-OIS to tighten further." In terms of Fedspeak, Quarles stated that "if my expectations about economic growth, employment, and inflation over the coming months are borne out, it will become important for the FOMC to begin discussing our plans to adjust the pace of asset purchases at upcoming meetings."
• Durable goods, weekly initial claims, the second Q1 GDP estimate, pending home sales and the Kansas City Fed m'fing index headline the local economic docket on Thursday. Elsewhere, 7-Year Tsy supply is due.