Better Bid Overnight

Core FI markets moved away from worst levels in Asia-Pac hours, with bears unable to force a meaningful extension of the recent weakness. There wasn’t much in the way of notable macro news flow.

• The more notable market flows tried to fade the Asia-Pac uptick in the Tsy space, with a couple of 2K+ screen sellers of TYH2 futures hitting, while 10K of block lifts in TYJ2 126.00 puts headlined broader overnight flow. TYH2 last +0-03+ at 126-22, 0-01 off session highs, while cash Tsys run 1-3bp richer across the curve, with bull flattening in play. Looking ahead, Wednesday’s NY docket is headlined by Fedspeak from Bowman & Mester, in addition to 10-Year Tsy supply.
• The super-long end led the JGB rally, with the major cash JGB benchmarks little changed to ~3.0bp richer, bull flattening in the process. Long dated swap spread tightening also pointed to receiver flows in swaps aiding the rally. JGB futures were +6 at the bell, with overnight losses more than reversed. The broader core FI bid and expectations re: the BoJ’s defence of the upper bound of its permitted 10-Year JGB yield trading band (0.25%) on any test of the level (if not pre-emptively) seemed to be the major supportive factors for the space. BoJ Rinban operations covering 1- to 10-Year JGBs saw little movement vs. prev in offer/cover terms. In local news, BoJ board member Nakamura stuck to the BoJ’s well-trodden central views in his latest address. Meanwhile, Tokyo and other prefectures requested an extension of the quasi COVID-19 state of emergency that they are currently observing, in line with press reports that have hit in recent days.
• Aussie bonds benefited from the broader uptick in core FI markets and the passage of supply-related pressure, with ACGB Nov’32 and semi-government issuance now behind us. YM +1.0 & XM +1.5 at the close, a touch shy of best levels of the day.