Chinese COVID Matters Front & Centre

A greater degree of optimism re: the Chinese COVID situation was evident on Tuesday, which biased the ACGB space lower.

• The run of fresh record daily new COVID cases in the country was halted, with speculation surrounding the potential content of an impending COVID-related press conference being held by the Chinese health authorities fuelling speculation of fresh movement in COVID restrictions.
• As we have noted elsewhere, speculation surrounding the potential for a complete re-opening seems a bit misplaced to us, although there may be further tweaks to China’s ZCS announced at the press conference.
• The space finished a little above its Sydney base after futures extended on their overnight downtick, leaving YM -4.0 & XM -9.0. Cash ACGBs were 4-9bp cheaper across the curve, with the 10- to 12-Year zone leading the weakness.
• EFPs were a touch narrower on the day, pointing to a bond-driven move.
• Bills saw some light bear steepening pressure, running flat to 3bp cheaper through the reds at the close
• Looking ahead, Wednesday’s domestic docket is bursting at the seams. It includes Q3 capex data, monthly CPI, building approvals & private sector credit, as well as A$700mn of ACGB Apr-33 supply and an address from RBA Head of Domestic Markets Kearns in front of the 2022 Australian Securitisation Conference.