Tight, Option Expiries Eyed, Fresh Downside Interest Blocked

Macro news flow has been mixed since the Tokyo re-open, with some positive vaccine news (albeit some of which was more a case of trials running on schedule) countered by reports of impending partial district lockdowns in Hong Kong. U.S. Tsys held to narrow ranges in Asia-Pac hours, with focus on the large nearby TYG1 option OI at the 137.00 strike ahead of today's February option expiry, with delta hedging plays having the ability to limit price swings on Friday. Elsewhere in the options space, 10-Year Tsy options saw fresh downside interest via a 10K block of the the TYJ1 138.00/133.00 risk reversal, buying the puts to sell the calls, targeting a ~32bp uptick in yields over the life of the contract. Remember that we saw a 10K block of the TYJ1 138.00/133.50 risk reversal during Asia hours earlier this week (in the same direction), although today's flow saw 4.0K of the FVH1 futures lifted at the same time. T-Notes last unch. at 136-28+, holding to a 0-03+ range, with cash Tsy yields little changed.

• As a reminder, T-Notes went out around the middle of their daily range on Thursday, while the cash curve twist steepened. 30s closed ~4.0bp cheaper on the day, with some of the downward pressure linked to moves in EGBs in the wake of the latest ECB decision. Focus there fell on President Lagarde underscoring the idea that the full PEPP envelope may not need to be used if favourable financing conditions can be maintained over the life of the scheme. U.S. President Biden's COVID strategy and broader plans continued to dominate local headline flow, with the new administration continuing to push the dark winter narrative re: the former. Elsewhere, 10-Year TIPS supply was well received, with breakevens extending to new cycle highs on Thursday.
• We also saw a 20K screen buyer of EDU1/Z1 in Asia, with Eurodollar futures running within 0.5 tick of settlement levels through the reds.
• Locally, flash PMIs & existing home sales data is due on Friday.