Cheaper In Early Dealing, As BoJ Talk Applies Pressure

TYH3 deals at 114-21, a touch below levels seen in late NY dealing on Friday as participants digest the news from previously covered source reports out of Japan re: Japan’s government being set to revise a decade-old joint statement with the BoJ which commits the Bank to achieving its 2% inflation at the earliest date possible (with the potential for hawkish read through into BoJ policy).

• Cash Tsys were 5bp richer to 5bp cheaper at Friday's close, twist steepening, with a pivot around 3s.
• Tsys recovered off NY lows as weaker-than-forecasted Markit PMI data facilitated support after initial pressure via cross-market spillover from EGBs.
• Fedspeak on Friday reinforced the central bank's message re: the need for higher rates. NY Fed's Williams, San Francisco Fed's Daly and Cleveland Fed's Mester all reiterated the central bank’s commitment to lowering inflation back to target and the need for clear evidence of easing inflation before thinking about a pause. Mester also noted her estimate for interest rates is higher than that of her colleagues as she sees more persistent inflation than other officials.
• Fed dated OIS is pricing ~32bp of tightening for the Feb ’23 meeting, remaining stable. Terminal rate pricing fell ~5bps on Friday to 4.84%, some way shy of the ~5.10% seen in the Fed’s latest dot plot.
• In Asia-Pac today we have a thin data calendar, with DM FI market response to the aforementioned BoJ rumours eyed. Further out we have the latest NAHB House Market Index reading in an otherwise light day, data-wise.