Cheaper As Asia Trade Wore On

The combination of steady LPR fixings from the PBoC, higher oil prices (although that relationship is by no means clear cut at present) and a slight hawkish tweak to Goldman Sachs’ forecast FOMC rate hike profile has seemingly fed into Tsy weakness (albeit in a delayed fashion) ahead of European hours, even with e-minis ticking lower. The wider spread re-opening of offices and manufacturing facilities in the Chinese city of Shenzhen may have helped the space move lower as well. TYM2 last prints -0-11 at 124-09+, around the base of its 0-08+ overnight range after moving lower in recent dealing, although volume has barely topped 45K. Activity in the space was dented by the fact that cash Tsy markets are not open until London hours owing to the observance of a Japanese holiday. Light cheapening was seen at the re-open, perhaps aided by headlines such as “Russia and Ukraine edge towards agreement on key peace points, says Turkey” (FT), even as the conflict rages on. Note that the Russian army has formally called on Ukrainian forces to lay down their arms in the city of Mariupol, promising safe passage out of the city if they do so. They also noted that humanitarian passage out of the city will be open at 07:00 London time on Monday. Elsewhere, the weekend saw Ukrainian President Zelenskiy reaffirm that he remains open to negotiations with his Russian counterpart, although he suggested that the failure of such peace talks would result in a third world war. On the issuance front we have seen reports that the Philippines will be coming to market with benchmark 5-, 10.5- & 25-Year US$-denominated paper, with pricing coming as soon as today, which may have fed into price action, albeit gradually. Looking ahead, the Chicago Fed National Activity index provides the only economic release of note on Monday, while Fedspeak will come from Chair Powell & Atlanta Fed President Bostic (’24 voter).

• The downtick in U.S. Tsy futures spilled over into Aussie bonds, allowing futures to erode overnight session gains as we moved through Sydney dealing, with major futures contracts going out at worst levels of the Sydney session, YM -2.0 and XM -0.5. Meanwhile, cash ACGBs twist flattened on the day (partly owing to Friday’s Tsy move), pivoting around 15s. The latest ACGB Jun-39 auction provided comfortable pricing through mids, although the cover ratio was on the soft side, printing below the 2.50x mark. While dealer liaison may have unearthed some demand, it would seem that the flatness of the curve and prevailing vol. in markets (as well as the early Monday timing of the auction) may have deterred some prospective bidders at auction. Still, those who were willing to add to their exposure of the line were seemingly willing to pay up. Note that PM Morrison’s ruling coalition lost the South Australia state election over the weekend, ahead of what is set to be a tough Federal Election for the ruling coalition. Monday saw Morrison signal budget measures to counter the cost of living crisis, as the political circuit warms up ahead of the aforementioned Federal election.