Tight Ahead Of 10-Year Supply, Option Flow Noted In Asia

T-Notes held to a narrow 0-06 range overnight, last +0-01+ at 132-11. Cash trade sees some twist steepening of the curve, with 30s cheapening by ~1.5bp on the day. There was nothing in the way of notable headline flow seen overnight, with participants looking ahead to 10-Year Tsy supply and the latest U.S. CPI print, both of which will hit later on Wednesday. A flurry of block trades was seen ahead of European hours. There was a 3,160 lot block buyer of FVM1. Elsewhere, there was a 1,875 lot block seller of TYJ1 134.00 puts (which looks like profit taking). This was followed up by a 9,375 lot block buyer of the TYJ1 130.00 puts. Note that a 5,625 block buyer of the TYJ1 130.00 puts was seen during Tuesday's Asia Pac session. Could the previously flagged long TYJ1 134.00 put profit taking actually be seeing some rolling into lower strikes and greater notional exposure? Eurodollar futures run unchanged to +2.0 through the reds, with a couple of rounds of buying witnessed in the reds during early Asia-Pac dealing as T-Notes traded through Tuesday's high before backing off a touch.

• As a reminder, Tuesday saw the space firm, with bull flattening in play as 30s richened by a little over 8.0bp come the bell. This came after a sizeable FV/TY bull flattener block trade in pre-NY dealing. Block buys in FV & TY futures during NY hours also aided upward momentum. Mid-month supply got off to a solid start, with the latest 3-Year auction stopping through WI by 0.4bp, while we saw an uptick in (and above recent average) cover ratio, as dealer participation remained below the recent average (although did nudge higher vs. prev. auction). Swap spreads narrowed given continued uncertainty surrounding Tsy SLR relief matters.