‘Heavy Selling’ Seen In Treasurys After Block Trade ‘Spooks’ Market

Ok, so bonds are on the back foot after a stellar German Ifo print that showed the eurozone’s most important economy is hitting on all cylinders.

That was a welcome development given what we’ve seen over the previous two sessions in the DAX, which was weighed down by concerns about automaker collusion and a stronger euro.

Now we’re seeing all kinds of pressure on bonds as yields jump, building on something that started a few hours ago when we got a $1m DV01 block sale in TY futures (12,792 at 126-00+).

Another wave of selling was evident after the trade was published, potentially spooking the market, given the size at this time of the day,” Bloomberg writes, before adding that this very well could be a partial unwind of a $2.9m/DV01 position established via blocks last week. This is from traders:

  • Tuesday’s 12,792 10Y futures block sale amounted to $1m/DV01, suggesting there may be ~$1.9m/DV01 to come
  • $2.9m/DV01 TY position was established via $1.9m/DV01 buy (23,865 TYU7 contracts at 125-29) July 18 and $940k/DV01 block buy (11,885 TYU7 at 126-03+) July 20

yields

TY

Needless to say, that drove the yen lower as USDJPY broke through Monday’s high:

USDJPY

Here’s bund yields:

Bunds

As Bloomberg reminds you, this comes ahead of a $26b 2Y auction which should be interesting following yesterday’s bill sale.

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