Tight Overnight, Powell, CPI & 10-Year Supply Awaits

Wednesday's pre-Lunar New Year Asia-Pacific session was devoid of any meaningful macro headline flow, with focus on the PBoC's latest net drain via OMOs as we move into the LNY break (physical cash demand is expected to be much lower than the holiday norm in China, given the COVID related travel restrictions that are in place in the country at present).

• That backdrop left T-Notes to operate within the confines of a 0-03 range, last -0-00+ at 136-22+, with cash Tsys little changed across the curve. The highlight came via a large TY options block, which initially looked like a 15.0K sale of the TYH1 136.25 puts & 30.0K sale of the TYH1 136.00 puts against buying 10.0K of the 3x1x2 TYJ1 134.50/133.50/133.00 put ladder. However, some have suggested that the block represented a 15.0K seller of the 1x2 TYH1 136.25/136.00 put spread against buying 10.0K of the TYJ1 134.50/133.50 put spread & 20.0K of the TYJ1 134.50/133.00 put spread.
• As a reminder, the curve twisted flatter on Tuesday, with some light outperformance in the belly, although the space pulled back from richest levels. This week's coupon supply got underway, with 3s stopping on the screws, as the cover ratio fell back in line with the 6-auction average, while dealer participation ticked lower as direct bidder takedown nudged higher.
• CPI and earnings data headline the local economic data docket on Wednesday. Elsewhere, 10-Year supply is on the slate, although it will be comments from Fed Chair Powell that garner the most attention.