Back From Early Highs, Vol. Remains Evident In Asia

Core fixed income markets have settled into narrower ranges in recent dealing after a volatile start to Asia-Pac trade, with limited headline flow evident overnight. It would seem that the rally in equity markets has taken the edge off of the early bid in core bonds, with U.S. Tsys fading from the highs which came about on the early Asia reaction to Friday's NY bid (potentially aided by softer than expected official PMI data out of China hitting over the weekend). The belly unwound some more of last Thursday's underperformance in cash trade, while weakness crept into the longer end of the curve as we moved through the Asia-Pac session. T-Notes +0-20 at 133-11 typing.

• The JGB space played catch up to Friday's late NY/Monday's early Asia rallies in core global FI markets at the Tokyo re-open, before pulling back from firmest levels of the day. Futures last +22, after core FI markets moved away from best levels despite a lack of notable headline flow. Although JGB futures were able to lean on some richening in the longer end of the domestic cash curve, with fresh bull flattening apparent during afternoon trade. 10-Year JGB yields hovering back around 15bp after a brief showing above 18.0bp on Friday (in turn affording the BoJ some breathing space re: the need to enforce its permitted trading range for 10-Year JGB yields). Local headline flow remains light, with the latest round of 3-5 Year BoJ Rinban operations unchanged in terms of purchase size and drawing an offer to cover ratio of 3.20x (prev. 3.65x).
• The knee jerk bid in Aussie bonds on the back of the RBA's upsizing of its scheduled ACGB purchases (to A$4.0bn from A$2.0bn) was quickly reversed, with the pullback in longer dated paper extending a little thereafter alongside the move in U.S. Tsys. Still, YM and XM remain comfortably above settlement levels, +8.5 and +25.0 respectively on the day largely owing to the recovery in U.S. Tsys. Tomorrow's RBA decision awaits (expect our full preview to be posted during the London morning).