The higher Treasury price go, the quieter it gets. That’s because buyers are satiated, convexity flows are absent and investors are reluctant to get involved ahead of Wednesday’s Fed meeting. Treasury prices should grind a little lower headed into the New York close as some earlier computer-generated demand is unwound. Treasuries rallied earlier amid systematic demand in futures in response to the weak cash equity open. This robot-tied flow has shown to be a pattern when stocks are weak since early July.
Weakness in China shares has not frightened all investors. That bot flow seemed well anticipated as strength in Treasury futures was faded by levered names who bought the basis in good size. In other words, they bought 10-year cash and sold 10-year futures as systems bought. Relative value hedge funds sold Sep 10Y contracts against the wings or surrounding issues. Others noted long-end sales emerged in Treasuries at the highs and spread-tied selling. The absence of convexity flows also kept a lid on prices.
Weakness in China shares has not frightened all investors. That bot flow seemed well anticipated as strength in Treasury futures was faded by levered names who bought the basis in good size. In other words, they bought 10-year cash and sold 10-year futures as systems bought. Relative value hedge funds sold Sep 10Y contracts against the wings or surrounding issues. Others noted long-end sales emerged in Treasuries at the highs and spread-tied selling. The absence of convexity flows also kept a lid on prices.