Bull Flattening Seen Across Core FI Space, Tsys Remain Bid

T-Notes have have extended yesterday's gains and last trade +0-08+ at 132-06, hitting fresh session highs. The contract has seemingly picked up a bid as regional players have acted on familiar drivers, including Fed Chair Powell's attempt to downplay unwanted inflation risk & a solid two-year Tsy auction. Cash Tsy curve has bull flattened and yields sit 0.4-1.9bp lower, with 7s outperforming ahead of Thursday's much awaited seven-year debt supply. Eurodollar futures trade unch. to +1.5 tick through the reds. 5-Year Note supply, Powell/Yellen Senate testimony, flash durable goods orders & Markit PMIs as well as more Fedspeak are the main points of note in the U.S. today.

• JGB futures oscillated around neutral levels and finished the morning session at 151.43, 17 ticks above the previous settlement. Cash JGB yields trade lower across a flatter curve. Japanese flash Jibun Bank PMIs improved a tad, but the services gauge remained in contractionary territory. The slightly outdated minutes from the BoJ's Jan MonPol meeting provided little in the way of market-moving insight. The MoF will tap 6-Month Bills later today.
• ACGBs have caught a bid, YM sits +2.0 & XM +7.0 at typing. Flattening impetus has hit the cash space as well, with yields last seen 0.1-7.4bp lower. Bills trade -1 to +2 ticks through the reds. The downsized (A$1.2bn) offering of ACGB 1.25% 21 May '32 was smoothly digested, as was the RBA's proposal to buy semi-gov't bonds with maturities of Mar '25 to May '32, excluding TASCORP Jan '32, TCV Nov '25, TCV Oct '29 and WATC Oct '30. There is some more RBA speak from Debelle & Bullock coming up today, after their colleague Harper said that the economic recovery is faster than expected. Across the Tasman, the unwinding of RBNZ tightening bets has continued, while New Zealand's central bank missed its LSAP purchase target, which sent NZGBs rallying.