Bonds Wounded By Risk Recovery, JGBs Take Breather After 40-Year Auction

Risk appetite returned, despite the absence of any major headline catalysts in the Asia-Pac session, sapping strength from safe haven assets. T-Notes went offered, extending losses to the session low of 131-30 as the DXY had a look above the 200-DMA for the first time since May 2020. Subsequent recovery attempt proved shallow and T-Notes last sit -0-01+ at 132-01+. Cash Tsy curve runs steeper, yields are -0.2bp to +1.5bp. 7s underperformed in early trade but gradually caught up, with focus on today's seven-year auction. The previous offering of that maturity was particularly weak and triggered an immediate bond sell-off. Eurodollar futures run unch. to -1.0 tick through the reds. Today's U.S. docket features tertiary GDP report, initial jobless claims and plenty of Fedspeak.

• JGB futures softened as the broader market impetus outweighed the impact of a decent enough 40-Year JGB sale. The contract jumped after the auction as high yield (0.675%) missed BBG estimate of 0.690%, even as bid/cover ratio slipped to 2.800x from 2.865x seen previously. Futures then slid to a new session low of 151.24 but retraced the move and last trade at 151.31, -11 ticks vs. settlement. Meanwhile, 40-Year JGBs extended post-auction gains and comfortably outperform in the cash space.
• ACGBs tracked moves in U.S. Tsys, cash curve runs steeper with yields sitting -0.1bp to +3.5bp. YM wavered and sits -1.0 at typing, with XM last -3.0 & off earlier lows. Bills trade unch. to -2 ticks through the reds. The RBA offered to buy A$2.0bn of ACGBs with maturities of Nov '28 to Nov '31.