Tight Session, Even With The PBoC Easing

TYU2 trades +0-03 at 119-11+, sitting 0-01+ off the peak of its 0-05 overnight range, on light volume of ~41K. Cash Tsys are -0.5 to +0.5bp across the curve, with the belly cheaper and the wings richer, at the margins.

• Tsys experienced a rangebound round of Asia-Pac trade, initially looking through weekend news flow which was headlined by 5 U.S. lawmakers travelling to Taiwan less than 2 weeks after House Speaker Pelosi’s visit (and shortly after Friday’s reports of plans being drawn up for a Biden-Xi meeting in November).
• The PBoC then livened things up with a surprise 10bp rate cut to both the 1-Year MLF and 7-Day reverse repo rates, alongside a CNY200bn drain in medium-term liquidity, with the latter in line with wider expectations. That applied very modest cheapening pressure to the space, before a softer than expected round of Chinese economic activity data put a bottom on the space, before a modest bid to crept in alongside a pullback from best levels in Chinese equities and e-minis.
• The combination of softer than expected economic activity data and Friday’s very soft Chinese credit data were touted as the tipping points for the PBoC when it came to today’s easing, while the liquidity drain came at a time whereby money market rates are trading sharply below policy rates, with banks seemingly unwilling to channel liquidity out to the economy, while the ZCS policy in China may be limiting demand for credit, to a degree.
• Looking ahead, Empire manufacturing and NAHB housing market data headline the NY docket on Monday.