Asia Reacts To Monday’s Tsy Sell Off

The combination of news of the latest localised lockdown in China (covering some neighbourhoods in Zhengzhou, Henan) and regulatory driven pressure in Chinese equities was seemingly enough to allow Tsys to move off their Asia lows, leaving TYH2 +0-01+ at typing, printing 129-15+. Cash Tsys sit 0.5bp cheaper to virtually unchanged across the curve, with very modest twist flattening in play after yesterday’s bear steepening. Note that bears have so far failed to force a test of initial technical support (129-12+), with a low of 129-13+ registered overnight, as the contract stuck to a 0-05+ range on ~100K lots. On the flow side, a 15K block seller of the FVG2 120.50/120.00 put spread headlined, with modest downside interest in various TYH2 put strategies also observed. The US$ swappable issuance pipeline built (headlined by Nomura, NAB & Credit Agricole). Firmer than expected Chinese Caixin manufacturing PMI data had no impact on the space. Looking ahead, the NY docket will bring the release of the latest ISM manufacturing survey & JOLTS jobs data. Elsewhere, Minneapolis Fed President (dove, ’23 voter) will speak re: the economy.

• JGBs have followed the broader ebb & flow witnessed in U.S. Tsys since catching up to Monday’s weakness in the U.S. fixed income space. That left futures -16 at the bell, a touch above Tokyo lows. Meanwhile, the major cash JGB benchmarks run little changed to nearly 2bp cheaper on the day, with 7s leading the weakness on the curve. BoJ Governor Kuroda failed to introduce any new topics into the pool of familiar reference points when it comes to BoJ rhetoric. PM Kishida flagged hesitancy when it comes to the go to travel scheme owing to omicron, with a review re: border controls set for next week.
• Aussie bond futures also followed the broader gyrations in the Tsy space, with a lack of idiosyncratic news flow apparent. That left YM -4.5 & XM -6.0 at the bell.