Weaker On UK Fiscal & Italian Political Mix

TYZ2 prints around the base of its 0-18+ overnight range into London hours, on volume of ~115K. Cash Tsys sit 4-7.5bp cheaper, with intermediates leading the weakness.

• Regional reaction to Friday’s Gilt-driven weakness in core global FI markets and the prospect of further fiscal support in the UK applied pressure during the early rounds of Asia-Pac dealing.
• The victory of the centre-right coalition in the Italian election, alongside the inability of that faction to secure a super majority (the most market “unfriendly” outcome), added further pressure.
• 2- & 3-Year yields have registered fresh cycle highs after the previous extremes limited weakness in the space earlier in the day.
• The 5-/30-Year yield spread has printed a fresh cycle low, while the 2-/10-Year yield curve is little changed, hovering a little above its own cycle extremes (J.P.Morgan have recommended initiating 2-/10-Year flatteners).
• Flow was headlined by a block sale of FV futures (-10K) and block buy of the TYX2 110.00/114.00 strangle (+10K).
• Dallas & Chicago Fed activity data, 2-Year Tsy supply and Fedspeak from Mester, Bostic, Collins & Logan headline domestic matters on Monday.
• Gilt reaction to fiscal-related weekend rhetoric and any European reaction to the Italian election will be eyed in pre-NY dealing.