Bond Market Carnage Wounds ACGBs, 10-Year JGBs Prove Defiant To Cheapening Impetus

Fallout from aggressive hawkish Fed repricing that roiled bond markets during Australia's long weekend has crippled ACGBs as the they resumed trading. Broader headline flow has failed to offer much in the way of fresh insights, with participants preparing for Wednesday's FOMC meeting.

• Cash ACGBs have tumbled across the curve, led by a surge in benchmark 3-Year yield. Bear flattening impetus has shown no signs of abating, with yields last seen 25.7-40.5bp higher. Main futures contracts trade on a heavier footing, YM last -28.8 & XM -23.9, with bills running 27-37 ticks lower through the reds. Hawkish Fed repricing has filtered through into RBA rate-hike expectations to some extent, with meeting-dated OIS now pricing ~51bp worth of tightening from Australian policymakers after their July meeting (up 3bp on the day). An auction for A$100mn of 20 Sep '30 I/L Bond & NAB Business Confidence headline the domestic docket today.
• T-Notes have stabilised after Monday's slump, in relative terms. TYU2 has oscillated within a 0-12 range in early Asia trade, struggling for a clear direction, and last change hands -0-02+ at 115-06+. Eurodollars sit -21 to +2.0 ticks through the reds. Further bear flattening has materialised in cash Tsy space, but to a lesser extent than on Monday. Yields last trade 0.9-3.8bp higher across the curve. Inversion in the 2-/10-Year & 5-/30-Year sectors has deepened. The U.S. docket is headline by monthly PPI report today, the final data signal surrounding inflation ahead of Wednesday's rate decision from the FOMC. Speculation is doing the rounds that policymakers could consider a 75bp rate hike in response to price growth running too hot.
• Meanwhile, the BoJ is expected to keep its ultra-loose policy parameters intact this week. On Monday, the Bank reaffirmed its commitment to the existing YCC framework by vowing to conduct an additional debt-purchase operation today, as 10-Year yield topped the upper end of its permitted -/+0.25% trading range and printed multi-year highs. Note that yesterday's daily bond-buying operation had the highest take-up (>Y1.5tn) since 2018. JGB futures have crept higher in morning trade today, they last sit at 147.85, 64 ticks shy of previous settlement. Cash JGB curve has bear steepened, with 10-Year yield flat in a notable exception. Looking ahead, the MoF will hold a liquidity-enhancement auction covering off-the-run JGBs with 15.5-39 years until maturity later today, while domestic industrial output data is unlikely to cause much reaction.