Another Torrid Day For Bulls

Spillover from Friday trade and incrementally positive news flow surrounding the Pfizer COVID vaccine helped weigh on the Tsy complex in Asia-Pac hours, while comments from senior Chinese diplomats/ministers offered little new re: Sino-U.S. tensions/de-escalation. Weakness in T-Notes has taken the contract below downtrend support drawn off the August 28 low, with bears now looking to projections off the Jan 4-12 sell off vs. the Jan 27 high, layered in at 135-00 and 134-22. Contract last trades -0-11+ at 135-03, lows of 135-02 registered thus far, volume running at a very solid and above average ~385K. Longer dated yields marched to fresh cycle highs in Asia, with cash 7s & 10s trading the best part of 5.0bp cheaper on the day.

• JGB futures have lacked any real follow through during Tokyo trade, but are threatening a more meaningful break below the overnight lows, -21 on the day at typing. Cash JGBs little changed, but biased marginally cheaper, 10s printing at ~0.115%, with eyes on the March '20 vol high at 0.125%. Super long swap spreads are wider on the day. Local news flow remains light, with the BoJ leaving the purchase sizes of its 10-25+ Year Rinban ops unchanged, with offer to cover ratios nudging higher, but not meaningfully so.
• Aussie bonds have also succumbed to the broader round of weakness, with YM -4.5, XM -15.5, albeit with a brief pause as the RBA stepped in to enforce its 3-Year yield target, although markets ultimately overpowered the impact from the announcement, resuming the move lower. Re: the Aussie/U.S. 10-Year yield spread, recent weeks have seen many chopped around by the crosswinds created by the U.S. fiscal impulse/reflation trade narrative, RBA policy and the Aussie bond space's high beta status re: the global growth narrative. This has resulted in most sell-side names reverting to a play the range mantra. The recent range has now broken, with the spread hitting the widest levels seen since October '20 during Monday trade.