Twist Flattening On Latest China Pushback To COVID Restriction Relaxation

Cash Tsys twist flattened during Monday’s Asia-Pac session after Chinese health officials pointed to unswerving commitment to the country’s dynamic COVID zero system over the weekend.

• The initial reaction to that headline flow for Tsys was to trade with a bid, although that impulse faded a little as participants weighed up the global inflationary and GDP growth impact of China’s ZCS.
• Meanwhile, source reports pointing to background U.S.-Russia discussions re: the prevention of further escalation in the Ukrainian war, as well as a bid in Hong Kong & Chinese equities (as participants continued to push that particular envelope after last week’s rally, even as re-opening names struggled in the wake of the weekend comments from Chinese health officials), applied some pressure.
• That leaves cash Tsys 2bp cheaper to 2bp richer across the curve, twist flattening (after Friday’s twist steepening) with a pivot seen around 7s. Meanwhile, TY futures print -0-02+ at 109-31, 0-02 off the base of its 0-09 overnight session range after that particular extreme held on a retest during Asia-Pac dealing. A block sale of TU futures (-2.4K) headlined on the flow side, with TY volume fairly limited at ~70K lots into Europe.
• A narrower than expected Chinese trade balance, compounded by softer than expected internals, had little impact on Tsys.
• Monday’s NY docket includes Fedspeak from Mester, Collins and Barkin (although comes in the latter rounds of NY trade and the NY-Asia crossover).