Aussie Bond Weakness Drives Broader Core FI In Asia

U.S. Tsys have largely been driven by the weakness in Aussie bonds, with little to go off on the broader macro headline flow front. The long end of the cash curve sits ~3.0bp cheaper on the day as the space bear steepens. T-Notes last -0-02 at 135-03, 0-05 off the lows after Aussie bonds regained some poise. Eurodollar futures run unchanged to 1.0 tick lower through the reds, with sizeable 2-way flow in EDM2 (at the same price) noted during Asia-Pac hours.

• While there has been little in the way of headline flow to wet the whistle for JGB traders, the broader weakness witnessed in core FI markets has dragged the space lower. Futures -18 at typing. Cash JGB trade has seen some bear steepening, with swap spreads widening across most of the curve outside of the super-long end. The JSCC/LCH spreads hold signs of foreign payers driving the moves in longer dated swaps. The BoJ left the size of its 1-10 Year Rinban operations as they were, with mixed offer/cover ratios, although the ratios didn't provide anything in the way of meaningful swings.
• Aussie bond futures have stabilised off of lows, at least for now, with YM last printing -2.5 (6.0 ticks off of lows) and XM -11.0 (2.5 ticks off of lows). There seemed to be several factors that intertwined to drive the latest leg of weakness: The market being disappointed with the size of RBA purchases employed to enforce the Bank's 3-Year ACGB yield target, stronger than expected local CapEx data & trans-Tasman impetus after the tweak to the RBNZ's remit, with the Bank now set to consider "the impact on housing when making monetary and financial policy decisions." Some also pointed to cross market AUD longs/received positions being washed out.