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(Z1) Shallow Bounce


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TYZ1 operating around late NY levels, a touch shy of Tuesday's highs, +0-01 at 130-20+.

  • The curve saw some twist flattening on Tuesday, with the 2- to 5-Year sector cheapening by 0.5-1.0bp on the day, with the cheapening linked to concession ahead of this week's Tsy coupon supply (which got underway on Tuesday with 2s). Longer dated paper richened by 1.0-4.0bp come the bell.
  • On the data front, stronger than expected home sales data added a source of pressure to the space, while consumer confidence rose.
  • Flow then helped the space form a base. Block buys in FV (+7.5K) & UXY futures (+11.0K) were seen during the NY morning, as was a TU/TY block flattener (-13,573/+6,977). NY option trade was headlined by a buyer of TYZ1 135.50 calls (+13.0K) and a seller of TYZ1 131.50 calls (+9.5K), with some smaller selling of the TYF2 128.50/130.50 strangle also observed.
  • In terms of auction specifics, 2-Year supply stopped through WI by 0.2bp, with the cover ratio recovering from the lowest level witnessed since '08 (seen in the prev. auction), to print above the recent averages. Dealer participation slid, printing comfortably below the recent averages.
  • Q3 Australian CPI data is due during Wednesday's Asia-Pac session. Meanwhile, NY hours will be headlined by 5-Year Tsy supply, with prelim. durable goods also due.