TYZ1 Hovers Around Settlement Levels After Limited Asia Trade

The cocktail of a Japanese holiday and proximity to Wednesday's FOMC decision has made for light Tsy trade in Asia, with a little over 40K TYZ1 contracts changing hands thus far. That particular contract last deals +0-00+ at 130-31+, with a downtick in oil & bid in ACGBs helping the move away from early session lows, while TYZ1 proved resilient to the pullback seen in ACGBs late in the Sydney day. A reminder that the Japanese holiday means that cash Tsys will not open for trade until London hours.

• The curve bull steepened on Tuesday, with 2s richening by ~5bp and 30s little changed come the bell. The front end of the curve was supported by an unwind of rate hike bets ahead of tomorrow's FOMC decision, with the red Eurodollar contracts firming by ~10bp on the day. Block buys in TU futures (+6,816 during the NY morning and +10,500 late in the day) helped underscore the bid in the front end.
• Looking ahead to the NY session, ADP employment data is due to hit (ahead of Friday's NFP print). Elsewhere, the latest FOMC decision is expected to result in a $15bn/month tapering announcement, while most of the attention is set to fall on the Fed's communication surrounding inflation dynamics and any further signals on the rate hike outlook. The final point of note comes in the form of the Treasury's quarterly refunding announcement.