Asia Fades The Latest Rally

Asia-Pac participants were seemingly keen to fade some of Monday’s NY Tsy richening (which was in part related to month-end index extension dynamics) allowing core FI markets to move off of their Monday/early Asia peaks. Surprise expansionary readings for both the Chinese official and Caixin manufacturing PMI prints added a further source of (light) pressure, with the official nonmanufacturing PMI release also topping wider expectations.

• This leaves TYM2 -0-05+ at 127-08+ ahead of European hours, operating a little off the base of its 0-09 overnight range, on ~150K lots. Cash Tsys run 2.5-3.5bp cheaper across the curve. NY hours will see the latest ISM m’fing survey headline, while Fedspeak will come via Mester (’22 voter) & Bostic (’24 voter).
• JGB futures traded above yesterday’s settlement levels for the duration of Tokyo dealing, but finished shy of best levels, +9. Cash JGBs were as much as 1.5bp richer out to the 20-Year sector, with the 7- to 10-Year zone leading, as a smooth 10-Year auction helped support. 30+-Year paper was marginally cheaper on the day, as the curve twist steepened. Wires ran headlines noting that the Japanese government is set to nominate Hajime Takata, an economist at Okasan Securities, and Naoki Tamura, of Sumitomo Mitsui, to replace outgoing BoJ board members Kataoka & Suzuki, whose terms finish on 23 July. Kataoka is the dovish stalwart on the board, with initial suggestions pointing to a less dovish makeup if these nominations are ratified. There wasn’t much in the way of market reaction to the report.
• ACGBs unwound their overnight and early Sydney firming ahead of the RBA decision, with the day’s big event ultimately producing nothing in the way of tangible market reaction. The Bank left its monetary policy settings unchanged, as expected, tipping its hat to the risks posed by the Russia-Ukraine conflict, while it sounded a little more worried re: the short-term inflationary impulse. Still, it referenced its prior forecasts when it came to underlying inflation The statement introduced references to wider employee compensation measures (outside of WPI), which although new to the post-meeting statement, had been covered by Governor Lowe in recent rounds of rhetoric (some noted that this gives the RBA more wiggle room when it comes to a quicker lift off, if deemed necessary). YM was unch., with XM -5.0 at the bell, a little off worst levels of Sydney dealing.