first day of extended Golden Week holiday tempers volume, activity….(Monday)

It has been a rather uneventful overnight session with volumes a sliver of average (roughly 30% of normal), owing to the beginning of Golden Week holiday that will last into next week. Cash will not open until 2 AM ET (7 AM London), so volume during the Asian session will likely stay light for the entire holiday. As for today, European and US fixed income came under minor selling pressure on the European open, with volume picking up slightly. Treasuries have since traded in a small bear steepener; as of 8 AM ET, Treasuries are flat to 1 bp higher in yield in a steepener, while US equity futures are sporting very minor losses ahead of the cash open.

The Asian session focused on a 20y TAP in Australia, that met with mediocre bidding but did stop through pre-auction levels, not a big surprise given the .24y extension for Aussie bonds this month end. Other than that, there was little to talk about as events and data were light in Asia, with PMIs tomorrow at least giving us a chance to generate some interest then. Asian equities traded mixed, but the Shenzhen did come under heavier pressure, trading down 2.4% amid stories that PBOC is running out of ammunition in its current easier credit program.

The European open saw better selling of bunds from the open, with RV account then selling RXM and TYM contracts when US cash opened. As bunds took out Friday’s lows shortly after Treasuries opened, CTA sellers emerged in RXM contracts and dragged US long end down in sympathy. Deal-related selling in buxl (German long end) and bank selling in bobls after S&P review of Italy did not see a downgrade (small probability) brought out better levels for peripherals, with Spain and Italy leading tightening to core. Belgium issued 6y, 10y, and 31y paper to mixed results, with some hedge unwinds helping to underpin belly of bund curve, while European stocks breaking off their highs helped stem the bleeding for German curve.

Today’s US calendar brings Personal income/consumption at 8:30 AM ET, the last meaningful “inflation” measure ahead of Wednesday’s FOMC meeting/press conference and then Friday’s April NFP report. There are plenty of US data and events this week, along with large month end extensions globally.

All right, so Friday’s bull steepening saw large increases in open interest for TU, FV, and TY contracts, with smaller increases in Ultra 10s, US classics, and Ultra bonds, effectively confirming the potential for pain from the bull steepener trade. We’ll see how that plays out Wednesday (FOMC) and Friday (NFP). All right, number in a minute. For choice today in TYM, call the range at 123-27 to 123-17. Below 123-17 is fine, but above 123-27 and it could get a little interesting…

Have a good Monday,